I'm t T and I'm Zakiah, and this is Dope Labs. Welcome to Dope Labs, a weekly podcast that mixes hardcore science with pop culture and a healthy dose of friendship. We are in a world that is more and more and more online. I feel like I'm constantly online. I'm never offline. There you go, and I feel like our pockets and wallets are not exempt from that either. M
this episode, we're diving into fintech. With the rise of AI and technology, there seems to be promises of banking and finances that are hyper personalized, instant, seamless, more secure, basically daft punk, harder, better, faster, stronger, organ manner manner. All right, let's jump into the rest ofation. What do we know? Okay, so we're not new to fintech, which is short for financial technology. We've talked about fintech in another lab, but we know that there's a little bit
more to this. Yeah. Yeah, Fintech is a broad term and it encompasses various categories of apps and platforms. Some of them are for payments and transfers think PayPal and Vemo, investing in trading apps, sometimes even saving like Acorn, and Robinhood. There's banking and budgeting apps. I use Copilot, not Microsoft Copilot, you know, same name, but different tasks. Right. We also talked about by now pay later apps, so that's like
Klarna and things like that. And there's also cryptocurrency, which we haven't talked about as much, but those platforms are included. And there are so many promises of fintech revolution with blockchain and decentralizing finance and how financial technology can improve access for people who are underbanked and underserved. But how does it all work? It just feels like words that and said, you know, how do we get to that point? Are we on the blockchain? All right? So what do
we want to know? I think let's start with the history of this, because it just feels like one day we were all say authentech or it was just all around. Let me tell you that movie Dope that came out a while ago. That was the first time I ever heard of anything like crypto and I don't know what that is, but they were ahead of their time because it then it felt like in the pandemic, everybody had NFTs, everybody was trying to buy crypto or bitcoin or whatever,
and I was like, what is going on? And it promised a lot, but did it deliver? I don't hear a lot of folks talking about it. It feels like the people who wan want big and early and early, right, But what does that mean for the future of fintech? And with us being on the precipice of a financial crisis, to many of us, it already feels like a financial crisis. What does that mean? Yeah, and with anything that has to do with money in this country, there are winners
and losers, so to speak. So how does fintech help? But also how does it hurt? Yeah? I think these are great questions. Let's jump into the dissection. In today's lab, we have Hillary Allen.
Hi, I'm Hillary Allen. I'm a law professor at the American University Washington College of Law and the author of Fintech Dystopia, which you can access online for free at fintech Dystopia dot com.
I would love to have us kind of jumpstart and jump in at a very introductory level into fintech. Can you describe in plain language like what fintech is and kind of shine a light where folks may not really know they're using fintech.
Honestly, it's going to be tricky to do because people don't use the term in the same way, right, right, So you know, obviously it's a combination of the words financial and technologies. So when we talk about fintech, we're usually talking about particular category of financial technologies that have been in use since the two thousand and eight financial crisis. They're usually using apps, there may be some AI involved, there may be some blockchain involved, So those are sort
of the technologies that are being used. But it's really sort of more of a business model or marketing type description than a category of technology. So one person's fintech may very well not be someone else's fintech.
You said something and I was like, please, finally someone who can answer my questions. Blockchain?
You want me to You want me to explain blockchain to you?
Yeah?
Sure. What a blockchain really is is a database, right. We record asset ownership on it, and you perform transactions on it by moving asset from one person to another person. That's, frankly, how we process all financial transactions these days using databases. The thing that's a little different about a blockchain is that there aren't trusted, permissioned people who we are in charge of saying, yep, this person does have that asset already,
I'm going to move it across for them instead. It's supposed to be that sort of anyone can theoretically can process the transaction, and that anyone can check to see if a person has the asset by looking at the blockchain, because they're publicly available. That has the potential to be abused. Right if you think about imagine anyone being able to move money in an out of your bank account. Right, so, need to have something in place to discourage bad actors
from spending the same asset twice or stealing assets. And so what they have are these game theory based mechanisms things they get called proof of work proof of steak that are expensive essentially to participate in. And so you're discouraged from doing bad transactions because it's going to cost you something. So that's sort of the the logic behind these, but it's actually quite expensive to participate in these game theory based mechanisms for approving transactions.
Okay, okay, So blockchain is an online record that folks can see and that a lot of computers can keep up a copy of and when new information gets added, it's hard and expensive to do fraud, okay without folks noticing. Okay, So that's what they say is the security. And so people use blockchain for things like cryptocurrency and tracking who owns something digitally like an NFT. You remember those NFTs with the monkeys in space and stuff like that.
Yeah.
So, and blockchains matter because it helps people agree on what happened without needing a company to be in charge of the records. So it's basically like how banks work for us and our money. Sounds like we remade a bank, but without regulations. I don't know.
No, you literally just described the crypto industry. They remade everything that was already in finance, only without regulation.
One of the things that stood out is you mentioned fintech as being this category of technologies and applications that came on the tail of the two thousand and eight financial crisis. Now people are not saying we're having a financial cris Well, some people are say I'm having one, but there are some people who are in denial. Yeah, But I feel like we're not always saying like we're in a financial crisis. It doesn't feel like the news is saying it the way it did in two thousand and eight.
We're not in a financial crisis yet, like we're in two thousand and eight. I think we're on the brink of one. But I think the point you're making is really important point, which is that it's been a long time since sort of the economy doing well meant that everyday people were doing well. Right. Economic inequality has been widening for decades, and we're now at the point where you know, people working full time are often just scraping by.
We're going to focus on making the economy good for people. And now even a good economy doesn't help half the population, right, So even in a good economy, a lot of people are struggling. The sad news is that I think we're on the brink of another financial crisis. So we're now, I think, on the brink of a bad economy, which is going to be problematic for those who were already struggling and others.
Well, what does fintech get right?
It's funny because I criticize fintech a lot, and people assumes then that I'm like playing defense for the banks and saying that everything was perfect with the banks, which is not the case. I've been criticizing banks for longer than I've been criticizing anything else. And one thing fintech has done reasonably well, I think is, you know, I identify a lot of the pain points right that people were excluded from financial services, were excluded from opportunities, et cetera.
And so a lot of the people in the fintech industry sort of say the right things because they've identified the right problems, but they don't have solutions to those problems, because if you think of what the problems are at a metal level, there this economic precarity we're just talking about, and when people are barely getting buy you're not going to solve that by giving them investment opportunities because people
don't have enough money to invest, you know. And then what we see is that the investment opportunities that are being pushed on people who have very little to invest look an awful lot like gambling. I'm talking about crypto, I'm talking about some of these stock trading options apps, and so this is money people can't afford to lose. Another way when we're trying to solve economic pricarity with financial services is to say well, people need to be
able to borrow more. So now we're talking about buy now, payof later, we're talking about earned wage access programs, we're talking about fintech lending platforms that sometimes look just like payday lending, only they have a fancy or app right, and financial services are in those circumstances are most likely to be predatory and exploitative because they can't really respond to the economic procarity, which we need to get at
with increasing the minimum wage, increasing social security benefits, bringing down healthcare costs like that, that's what needs to be solved.
There. What other types of financial services problems do we see in the US that we really need to address.
So we have a lot of people in this country who are unbanked, they don't have access to banking services, and we've seen a lot of neo banks, fintech banks try and fill that voice. But what they don't come out and say is that you don't get deposit insurance
with those neo banks, those fintech banks. They may have some arrangement with a bank where it's sometimes covered depending where your money sits, but if you're forfeiting some consumer protections when you're using those instead of an ensured regulated bank.
Because when a bank is insured, that means if anything happens, they have to give you your money. Yeah, and so check your account details. Also if you go to the teller, if anybody's still driving to the bank, if you go to the teller, on the window, you'll see FDIC and the Federal I think the minimum amount is like two hundred and fifty thousand dollars per account. That's how much they will ensure.
So there are plenty of countries around the world that just pass laws saying, guess what banks you need to offer extremely low cost or no cost bank account everybody. And that is I think the real solution to limited access to financial services, not these sort of alternatives that don't protect your funds the same way banks to it.
I think that's such a great point about the folks who are unbanked and underbanked. The FDIC said that fourteen point two percent of households are underbanked, so that had bank accounts but used non bank services, just like you
were talking about. And when we then dig a little bit deeper into the demographics of folks that are most likely to be unbanked or underbanked, we see that there's a racial disparity there as well, and so there's cascading effects and there's compounding effects because of that.
For sure, the users of fintech services, many of these fintech services are disproportionately black and Hispanic, and as I said, there are often fewer consumer protections than if you're using more traditional financial services. I want to point out something because it's really important. You mentioned unbanked and underbanked, and they're two very different problems. Right, So if you're unbanked, you don't have a bank account at all. It's very
expensive to be unbanked. You've got to use check cashing services for everything, etc. So that kind of problem is solved by the solution I mentioned just before about giving everybody a bank account. Under banked, now we're getting more the economic precarity problems, because these are people that have access to financial services but simply don't have enough money to make ends meet. Right they can't wait a couple
of days for their paycheck to clear. That is something we could actually fix by law, by the way, Congress could just say paychecks clear quicker.
Wow.
It's not a tech problem at all. So much of this is political economy. We should fix that, but also we shouldn't have half the country so desperate that they can't get buy for a few days until they're check clears right, right, So a lot of the underbank stuff really ties to this economic precarity, and financial services products can't really fix that problem. They can serve as a bit of a band aid, but sometimes that band aid
lessens the pressure to actually fix the problem. And also that band aid can also be quite exploitative lucrative for the providers, while at the same time, myers the people who need those services even more in debt or they lose money gambling essentially, and then they're in a worse position than they were before.
So I think I use traditional banking services. That's what I grew up on. I mean, my mom gave me a fake check book at a very early age and was like, you have to balance this, and I was writing my grandmother checks for dinner, like thank you for dinner. I love here you go unlimited deposits though it was
not insured either. But when I think about that, and I think about some of the things that I've used for convenience, like not check cashing services, but things where you like even in starting a business, things that feel frictionless. I think part of the traditional banking system is it feels like there's so much friction, like you have to have these many differ types of forms of ID to open an account and an address that matches your on your license, it has to match your bills or whatever.
So when you're moving and things like that, it becomes very difficult when things feel frictionless like this, like you are the cost that's being paid, Like your information, your data that becomes the cost. Is that the same way for fintech.
I think it's always true. When you're not paying for the product, you are the product. And payments data is so valuable to these companies because think about it, when you post something on social media, you're showing the world what you want them to see. When you're actually buying stuff, that's what you really care about, right, So payments data
is very very juicy and very very valuable. I want to come back to this point about frictions and so much of what we see in tech, and I'm not just talking about finance here, and like tech in general, it's all about making things simpler, easier, reducing frictions and stuff but and this alludes to something you just said, like, not all circumstances are the same, right when you know, we always hear like make money as easy as sending an email or a photograph. Well, if your email or
your photo never gets there, too bad, so sad. Right if your money disappears, that's a much bigger deal. Yes, So sometimes when the stakes are high, there are some frictions for a reason, which doesn't mean they all should be there, and we should definitely think about which ones we should eliminate. I'm not saying we should just stick with the status quo. But convenience comes at a cost, right, and sometimes having some inconvenience can be worthwhile when the
steaks are really really hot. Sometimes investing in sort of the boring aspects of like just making sure your stuff is in a bank and someone is keeping an eye on it is worth it. I mean, even if you have like a PayPal account or a Venmo account, if you keep your money in a wallet, but then it's it's not insured, it's just part of their assets. If they were to go bankrupt, that stops being You become an unsecure creditor and you wait years for their bankruptcy
to go through. So as much as it can be a little inconvenient and boring, like, I highly recommend keeping your money in an FDIC inshored bank.
There are a few things that popped out to me, and one of them was regulations and Congress and how they play a role in this. When you think about moments in US financial history, like the post two thousand and eight Dodd Frank era and things like that, what patterns do you see with regulators and what does that history tell us about the future as fintech continues to evolve.
Yeah, it's a great question, And if you don't mind, I'm going to go a little further back than two thousand and I'm going to go back to the nineteen twenties because I think that's the analog for our moment now. So, you know, the Roaring twenties, there was huge wealth inequality. People were buying stocks and bonds left, right and center, from door to door salesmen. They often had nothing behind them. People this is people would talk about it over their
fences of parties, et cetera. And then there's not really much regulation around that, and then we have a giant stock market crash in nineteen twenty nine. That precipitates a banking crisis where banks start failing left, right, and center. There's not deposit insurance yet, and we end up with
the Great Depression. And so the response to that was to put in place what has become the sort of the backbone of our financial regulatory infrastructure, deposit insurance, banking regulations, splitting banks that sort of do classic banking business from investment banks. We get the securities laws, which basically say, if you want to sell stocks and bonds to the public, you've got to make disclosures and you've got to register with the sec Things start to unravel a little bit
in the nineteen seventies and the nineteen eighties. In nineteen ninety nine they allow for investment banks and commercial banks to come back together again. We get laws that say, oh, you're not allowed to regulate certain financial products like derivatives, because that's we don't want to hurt innovation. They keep saying that. Then starts spiraling out of the control, and then we have a financial crisis. In two thousand and eight.
Some things TT and I've been talking about for our listeners about gambling and like how it seems to be little micro gambling everywhere and the like. Were they doing that in the nineteen twenty two Yes see.
There was a really interesting article that came out, like I think in twenty twenty one in the Atlantic about America's gambling addection metastasizing, and they said that basically, in times of uncertainty and precarity, you always see more gambling. So like around the French Revolution, everybody was gambling. It's just you know, it's it's something that happens.
Why didn't they teach us that in the history books?
That's a good question.
I just am thinking about how it feels like we're always behind the technology. We're always behind and protecting the people, And I don't know how we change that because that doesn't feel limited to finance. It feels like that for it feels like that for space travel, it feels like that for everything, environmental pollution.
AI And the answer is it's nothing to do with the technology, right, So the technology would have you believe that the law can't keep up with the technology law totally? Can you just have broad functional laws and you enforce it as new things evolve? You know your reason by analogy law totally can keep up with developments, but the money doesn't want it to. And that is the issue, right. It's not that the law can't keep up with technology, it's that those who are developing the technology have a
very vested interest in making the law seem obsolete. And money talks. So you know, the answer to your question is really a political economy story, which is like, how the hell do we get regulatory apparatus that actually focuses on protecting people from harm and doesn't just favor the
interests of the wealthy who are pushing this stuff. One of the sort of things I talk about a lot in this fintech dystopia book that I published is the importance to laugh at the wealthy, the importance to laugh at when we're told stories about all this stuff that technology is going to do, and how amazing it's going to be with the space travel and the AI, and how we can't possibly rein it in because you know,
we'll be shooting ourselves in the foot. We need to collectively laugh at that a little because the people who are saying this often, to be clear, aren't even grounded to the technology. They're people that developed an app or a browser, twenty years ago, made a ton of money and now think they know everything about everything. We've got Elon Musk telling us that we're just going to terraform Mars and move there and then get people who actually
know anything about it. They're like, yeah, no, that's not going to happen. But we have to listen to these people because they have such all out and megaphone, because they have so much money. So I hope we can at least laugh at them a little bit.
So that leads to my next question is, as the citizens of this country, how do we prepare ourselves for what is possible to come? And how do we hold our elected officials accountable? What should we be asking for? What should we be saying is needed in order to protect ourselves the common people?
One thing, and this is very niche, but I actually think it's really worth looking at. So the crypto industry has been very aggressive in their political spending. In the twenty twenty four election cycle, Over half the corporate pack money spent was spent by the crypto industry. So think about that. You know there's pharma whatever, half of it was crypto.
That's a lot of money to be spent. So when you think about packs, and when you hear the term pack, I'm always like, oh, political groups, what are they doing. They're working together because they have policy or certain laws they want to be passed, and so these groups put
money behind candidates that are aligned with their interest. So you begin to see people who are more and more pro crypto because they want friendlier rules for the crypto industry and these are things we should be paying attention to.
And they were so pleased with how it worked out that they're getting ready to do it again for the twenty twenty six election cycle. And also, so the same people who are sort of behind the crypto industry push there, particularly the venture capital firm Dries and Horowitz, want to do the same thing for AI, right, and so they're doing the same strategy of forming their super PACs and basically putting a target on the back of anybody who they think will get in the way of their AI ambitions.
And I have spoken to people off the record in Congress who have admitted that they have voted for legislation because they're afraid of this money, even when they know it's bad legislation. So I think what we need in Congress is fighters and to make this money a liability. So the crypto industry came up with this website called stand withthcrypto dot com and it gives people ratings members of Congress. Like the NRA gives people's ratings for gunfriendliness,
this gives people ratings for crypto friendliness. And as I said, this is both sides of the aisle. So if you see that your representative has an a from the crypto industry, you might want to consider supporting their primary challenger. I think we're going to see a wave of primary challengers in this next few months, and that might be a good litmus test for you.
Okay, that's a great way to think about it. Yes, I'm looking at it right now. Okay, Yes, I'm gonna be like, get tell me where you live and I will tell you. Yes, this is an amazing website. There's so many a's so that's a lot of money. Though, that's a lot, a lot of work to do. Mmmm, We've got work to do, folks. That's what that Soon they'll probably be a similar website for AI so we can.
Look well exactly well, and honestly, you don't even need one because it's the same people the same thing, right, Like there's the Venn diagram of crypto support and AI supporters our girl.
Yes, I think we've asked a lot of questions and we've focused on like what is fintech gotten wrong? What is banking gotten wrong? Is there looking ahead? Is there anything you're hopeful about or optimistic about, or that you think fintech might get right?
So, fintech is such a big umbrella and there's so many different things. There are places where there are frictions you want to fix, right. There are some people that are doing payments technologies that can speed things up in a way that doesn't sacrifice regulatory protections and things like that. I think there's some opportunities there, But I think so much of what we want to fix and we look to finance to fix or not financial service industry problems. Right.
So I guess if I'm talking about my silver lining here, I'm hoping maybe that if we see all this stuff blow up, will be a little less credulous promises that these are things that tech business models can fix, and maybe then we do the hard work of getting the minimum wage increased, of improving employment benefits, you know. But I mean maybe that's just a pie in the sky. But it's just the real solutions are not in the technology for most of these problems.
Anytime I hear stuff like this, it always makes me feel two things. One, I feel very very frustrated with elected officials and the way that the money moves, and like, because we go to the polls, we vote for people and we expect for them to have our best interests
at heart, and it doesn't feel like that. The other thing that it makes me feel is that as we turn on people's microphones, like you, Hillary, and you share this information and people hear it, we also have the power to make some changes and to ask more so that we can have the rights that we deserve as citizens.
You know, like we shouldn't feel constantly duped by our elected officials, and that feeling should be nonpartisan and we should all be really fed up with it and really hold their feet to the fire.
Here here, I mean, it's primary season, people, It's time come on.
You can find us on X and Instagram at Dope Labs podcast. You can find me tt on X threads and Instagram at dr Underscore t Sho, and you can find Zakiya at z said so Dope Labs is a production of Lemonada Media. Our supervising producer is Keegan Zemma. Dope Labs is sound designed, edited, and mixed by James Sparber. Lemonada's Senior Vice President of Content and Production is Jackie Danziger. Executive producer from iHeart Podcast is Katrina Norvil. Marketing lead
is Alison Tanter. Original music composed and produced by Takayasuzawa and Alex suki Ura, with additional music by Elijah Harvey. Dope Labs is executive produced by us T T Show Dia and Zakiah Wattley