Brown on Business
April 5-11, 2021
Federal banking regulators search for artificial intelligence
By Wesley Brown
wesley@dailydata.com
Five of the nation’s top financial regulatory agencies announced on Monday that they are gathering insight on banks and financial institutions’ use of artificial intelligence, or AI.
The agencies, which include the Federal Reserve Board, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC), said they are seeking information from the public on how financial institutions use AI and so-called machine learning in their operations and day-to-day activities.
As in many federal fishing expeditions seeking input from the private sector and public, the announced request for information (RFI) is looking to gain input from financial institutions, trade associations, consumer groups, and other stakeholders on the growing use of AI by financial institutions.
More specifically, the RFI seeks comments to better understand the use of AI by financial institutions and the appropriate governance, risk management, and controls over the sometimes scary technology that mimics human behavior. In the upcoming days, the federal banking agencies plan to push out the RFI in the Federal Register, where anyone can make comments over a period of 60 days.
Depending on feedback, the Federal Register will close or extend the comment period and the Big Five banking regulators will decide if they need to implement new policies, rulemaking, or request Congress to sponsor new laws dealing with AI.
But to find the origin and history of AI, machine learning, and data analytics in the banking sector, the Federal Reserve and the other banking regulators may find those roots in Arkansas. The story has been told many times surrounding the origin of the former Systematics and how it was the foundation of the growing financial technology or fintech industry. But it was best explained during a Little Rock Chamber of Commerce annual meeting in December 2015 when Gary Norcross, current Chairman, President, and CEO of Jacksonville, Fla.-based Financial National Information Services (FIS), was the keynote.
During that speech in Little Rock, Norcross told a packed chamber crowd that the dramatic rise of the Arkansas-bred financial services and technology giant he now leads resulted from key principles that have guided the company for nearly five decades.
Founded as Systematics Inc. in 1968, and later acquired by Alltel Information Services in 1990, and eventually bought by Jacksonville, Fla.-based Fidelity National Financial in 2003, FIS is now the world’s largest provider of banking payment technologies with more than 20,000 financial clients in over 130 countries. Two weeks before his chamber talk in Arkansas, FIS had just completed the acquisition of former rival SunGard, in a cash and stock deal worth $5.1 billion.
That deal nearly doubled FIS’s size and made it the clear winner in the race to be the global leader in the financial technology and payment processing industry, where the Florida-based Fortune 500 firm now has more than 55,000 employees worldwide. But Norcross has not forgotten his Razorback roots.
“We have such a proud heritage of being a part of Little Rock and part of Arkansas, and that is something we don’t take lightly,” said Norcross, who took the reins as FIS’s top executive on the first day of 2015.
The University of Arkansas graduate, who started at FIS as a management trainee for the Alltel split off in 2003, said the foundation of the company’s consistent and strong growth are the “guiding principles” of building trust, inspiring passion to act, fostering an entrepreneurial spirit, empowering employee growth and giving back to the communities the company services.
No longer a tiny Arkansas tech startup, Norcross said then FIS’s incredible growth and breadth was necessary to handle the dynamic change that the banking and financial services industry is undergoing. At the end of fiscal 2020, FIS’s annual revenues had jumped nearly 45% to $12.6 billion from only $8.7 billion in 2017.
“We are large,” he said. “We believe that scale matters to our clients, so it is all about not being ‘big for big’s sake,’ but how do we drive the scale necessary to compete in what we believe is one of the most aggressive markets that has ever existed.”
“If you’ve been to any of our offices, or you’ve been out to our West Little Rock campus, you will find these guiding principles are spread throughout our campuses around the world,” Norcross continued, noting that FIS still maintains a large 500-worker campus in West Little Rock. “We think these are very good, cohesive ways to drive a consistent culture, which will then drive consistent results for our clients in the marketplace.”
Not only has FIS retained its ties to its Arkansas heritage, but FIS has also played a key role in Little Rock earning a reputation as the fintech center of the South. Since 2015, the year after his Little Rock Chamber speech, the Florida financial technology giant has sponsored and backed the nationally recognized FIS Fintech Accelerator in partnership with The Venture Center and the state of Arkansas.
Each year, the Venture Center and FIS select 10 fintech companies to take part in a 12-week bootcamp training setting with experts from FIS and the banking industry at the Little Rock Technology Park. Each fintech also receives a monetary investment and a chance to show their refined fintech ideas to more than 100 leading financial institutions, potential investors, and industry participants at the 2021 FIS Demo Day, usually hosted by Norcross and Gov. Asa Hutchinson.
Although the past two fintech accelerators have been held virtually because of the pandemic, past programs have attracted as many as 280 applicants from 40 countries. In 2018, each of the startups were also given $75,000 after completing in-depth mentoring and training from dozens of executives and mentors in the financial and banking sector.
The 2021 program is open to growth-stage fintech firms with established customers and recurring revenue. This year’s cohort also encouraged applications from startups owned or operated by women and underrepresented minorities. Gov. Hutchinson is so taken with the program that he once called Little Rock and Central Arkansas the “microhub” for financial technology startups.
In fact, several former graduates of the Arkansas fintech program have developed startup firms and models that already have experimented with the game-changing technology. In 2017, Bond.AI, a financial growth platform that uses conversational artificial intelligence to help individuals meet financial goals and provides banks with AI infrastructure, announced it was relocating its headquarters from New York City to Little Rock.
The FIS investment and Arkansas’ deep fintech roots have always spawned other similar accelerated projects since Norcross’ chamber speech. For example, Washington, D.C.-based Independent Community Bankers of America (ICBA) in January kicked off its third annual ICBA ThinkTECH Accelerator cohort, along with help from Venture Center and the governor’s economic development team.
That 12-week virtual bootcamp, backed by the nation’s largest trade organization for community banks with less than $10 billion in assets, included 10 fintech that dabbles in everything from cybersecurity and AI to digital customer service and automatic lending platforms.
So, U.S. financial regulators seeking to learn how artificial intelligence will impact the future of the nation’s banking industry don’t really have to look far, according to Hutchinson. “Arkansas is the birthplace of fintech, and the state continues to birth fintech projects that are both down-to-earth and world-changing,” said the Arkansas governor.
Federal regulators would do well to listen.
