Estimated read time: 6-7 minutes
SALT LAKE CITY — During the University of Utah's inaugural FinTech Summit, Utah Sen. Mitt Romney congratulated the economics and financial sector of Utah for its successful response to the economic challenges that came with the pandemic, saying that the state had possibly "the best response in the country" regarding Paycheck Protection Program loans.
When Romney officially left Bain Capital and the business world in 1999, the internet was still in its infancy. Now, the overlapping world of finance and technology, or fintech, has matured and shaped the world in unimaginable ways.
One of the main reasons the U.S., and Utah in particular, has become a strong leader in the financial technology field is the fluid connection between innovators and the funds needed to get their ideas off the ground, and the financial services sector has had to be just as innovative as the high-tech sector, Romney explained.
"We are awash in funds available for either startups or expansion capital," he said. "The funds available far exceed the opportunity to apply those funds in a meaningful way. It's a marvelous thing."
The senator said that businesses, especially innovative businesses like those in fintech, come to Utah for four reasons.
- Utah is a good place to live. The beautiful mountains and outdoor activities like skiing, snowboarding, hiking, mountain biking and many others draw business leaders to Utah. When enterprises think about where they want to be, the Beehive State comes to mind, he said.
- Utah has a skilled, motivated workforce. Because of the large number of high-ranking universities, "Utah has a good supply of well-educated people," Romney said. He also credited the quality of the workforce to Utah welcoming a wide variety of people, and diversity inspires innovation.
- Utah has started creating clusters. Business clusters are locations with a concentration of interconnected businesses in a particular field, like Silicon Slopes. Romney noted that Utah has clusters of high-tech services, health care and financial services that inspire "learning across enterprises, even those that compete." "I'm delighted we have a growing cluster like this in our state," he added.
- Utah offers better state laws and regulations for businesses. There has long been a number of business leaders, and thus businesses that move to Utah from California, especially during the pandemic. "They have made so many bad decisions that enterprises don't want to be there anymore," Romney said.
Looking to the future of the economy and fintech, Romney said that he believes inflation will come down a bit, interest rates will likely be raised, the government relief checks are likely to be put back into the economy, and that "it's going to take a long time" for the supply chain to get back to normal.
Fintech will be crucial to the country continuing to recover from the pandemic economically because fintech can make it easier to finance other new companies, which creates more jobs, he concluded.
Balancing safety and innovation
Tech companies bring convenience and accessibility to fintech and do not have to operate within the strict regulatory parameters that banks do, but banks also have those regulations for a reason — to protect consumers so they aren't taken advantage of.
"How do we allow that landscape to protect people, ensure safety, do all those things that it's designed to do, but not stifle innovation?" asked Howard Headlee. president of the Utah Bankers Association and panelist in the following session of the summit.
He spoke of how fintech companies are "changing and revolutionizing every aspect" of financial services, which creates a diverse range of services and companies in the sector, "and we get to see it in Utah everywhere."
The speakers discussed financial inclusion, which is the concept that businesses provide responsible, sustainable and widespread access to affordable financial services, including being able to offer financial services to people in underserved communities.
The upside of financial inclusion is that "tech can be a tremendous enabler," said Brandon Milhorn, deputy to the chairman and chief of staff and chief operating officer at the Federal Deposit Insurance Corporation. He told a story about the chairwoman of the FDIC, Jelena McWilliams, who was born in Serbia, coming to the U.S. and being unable to open a credit card. When she finally opened one, she felt like she finally belonged because she could participate in the economy.
However, simply expanding the reach of financial technology to underserved communities doesn't necessarily mean that those people will be affected in a positive way, explained Christopher Peterson, professor at the University of Utah S.J. Quinney College of Law and a former 2020 Democratic candidate for governor.
A lot of people worry about the fintech center in Utah using financial inclusion as financial oppression, he explained. He said he spoke with an indigenous woman who took out a loan of $19,000 against her truck from an "inclusive" fintech company, but they charged her interest rates up to 400%. Her job paid her $11.00 an hour, and although she regularly made the payments, the high interest rates meant that she ended up paying $25,000 and was still just barely staying afloat of the loan.
"To her, that was not inclusion; it was a debt trap," he said. "That's legal here in the state of Utah. Other states see financial products coming out of Utah with some real suspicion because they're worried about that type of financial inclusion. Financial inclusion that's not fair, that doesn't have financial products that actually work in the best interest of people, that's not really inclusion. What it is, is oppression."
Although innovation has real value, he continued, "I just don't want us to walk away with the illusion that all financial services are working out well for everybody. That's not always true."
Milhorn said that one way to combat that is to bring tech into a more regulated banking environment to protect customers.
"We want banks that can incorporate technology and be successful, that can continue to compete. When they do that, it brings consumers into a regulated environment," he said.
Another way that fintech companies have tried to create affordable financial services is through alternative data — a way to take out loans based on information other than a credit score. People who have low credit scores may not qualify for certain financial services, so fintech companies have developed ways around using credit scores to open up financial services to more people. This is usually done through AI that evaluates their personal data in order to determine who is a high-risk customer and who is low risk.
But this technology can run into an issue common across many technological platforms: built-in bias.
Peterson offered the example that people who use furniture coasters to prevent scuffs on their floors are determined most likely to repay loans. But what about people who come from a different background and would still repay loans but aren't familiar with or don't have a use for furniture coasters?
This could mean "building an impermissible, discriminatory bias in your credit rating system," he explained. He also said that the same data that could be used to allow people opportunities they might not otherwise have might also be used to target people at their most vulnerable in order to profit off of that weakness.
Edward Leary, Utah Department of Financial Services commissioner, responded that although fintech can create these kinds of problems, these companies can also help solve them through that same innovation process.