Kellogg on Policy and Public Impact

Consumer finance and new technologies: research and practice

Foundational strength to help cross sectors

The household finance landscape has grown more complex and data-rich in recent years, offering unprecedented opportunities for research as well as new business opportunities.

Understanding the evolution in household finance requires research to inform practice and policy related to consumer debt, credit, savings, and financial literacy. Join researchers, policymakers, and industry practitioners in exploring these topics.

April 27-28, 2017


Day 1
New developments in household finance (Academic workshop)


Day 2
Fintech and the future of finance

Contact
Janice Eberly
James R. and Helen D. Russell Professor of Finance
Faculty Director, Kellogg Public-Private Initiative
Email
Sheila Duran
Senior Director, Kellogg Public-Private Initiative
Email

Explore the Policy ecosystem at Kellogg

@issue Faculty Forum: Craig Garthwaite on the ACA

Professor Craig Garthwaite discussed how the new administration's healthcare proposal could impact patients, insurers, and hospitals at the March 2, 2017, faculty forum.

Kellogg on Growth | 2016

Leigh Morgan of The Gates Foundation presented a keynote at the 2016 Growth Forum that explored her leadership experience in corporate, public, nonprofit, and philanthropy sectors.

@issue: The Role of Demographics and Why the Pollsters Got it Wrong

Panel presented by Kellogg Student Association and KPPI, featuring Professors David Besanko and Blake McShane on December 1, 2016.

@issue: The Future of Policy Post the 2016 Election

Panel presented by the Public Policy Club, Health Club, and KPPI, featuring Professors David Besanko, Janice Eberly, Craig Garthwaite, and Ben Jones on November 11, 2016.

@issue: Brexit and the Future of Europe

Panel presented by the Public Policy Club, the European Business Club, and KPPI featuring Professors David Austin-Smith and Sergio Rebelo on November 8, 2016.

Boom vs. Doom: Debate on the Future of the Economy

Discussion presented by KPPI and the Chicago Council of Global Affairs featuring Professors Robert Gordon and Joel Mokyr on October 31, 2016.

IMF Managing Director Christine Lagarde Urges More “Inclusive” Economy

Lagarde speaks on global economic outlook at Kellogg School of Management at Northwestern University on September 29, 2016. Read the Kellogg News recap, and a Kellogg Insight interview with Lagarde and Sergio Rebelo.

Susan Bies Lecture on Economics and Public Policy – featuring Ben Bernanke

Professor Janice Eberly interviewed Ben Bernanke, in an event presented by Northwestern’s department of economics on April 25, 2016.

Janice Eberly Named Co-Editor of Leading Policy Publication

As the former chief economist for the U.S. Treasury, Eberly will be the first woman to helm The Brookings Institution’s flagship economic journal.

Kellogg on Growth | 2015

Professor David Besanko led a panel discussion on “Infrastructure for the 22nd century: Can public investment keep up with private sector growth?” featuring Rosalia De Leon, Congressman Robert Dold ’10, Aaron Klein, Rebecca Scheinfeld ’08, and Emilio Tenuta ’05.

Alumni in Policy

Jennifer Colville ‘95

Policy Advisor/Innovation, Arab States / United Nations Development Programme (UNDP)

Jennifer Colville '95 is a growth driver in the global economy, and promotes Kellogg’s Policy vision of preparing leaders to understand how to create sound economic policy. In her role at UNDP, Colville is exploring a host of innovation drivers, from gamification to behavioral science to social innovation camps. She also leads UNDP’s broader efforts to reach out to a variety of voices that haven’t traditionally been amplified.

Jonathan Greenblatt '99

National Director Designate / Anti-Defamation League

Jonathan Greenblatt '99 is the National Director (CEO) Designate at the Anti-Defamation League and a Senior Fellow at the Wharton School. He is the co-founder of Ethos Water (acquired by Starbucks in 2005); founder of All for Good (acquired by Points of Light in 2011), former Special Assistant to the President and Director of the White House Office of Social Innovation and Civic Participation (2011-2014), and former CEO of GOOD Worldwide.

James Tong ‘05

Vice President, Strategy & Governmental Affairs / Clean Power Finance

James Tong '05 leads collaborative efforts with solar businesses, utilities, government agencies, and academic researchers to accelerate solar deployment and reduce barriers to adoption. Prior to entering the solar industry, he served in various management positions at GE, where he completed its elite commercial leadership program. He has also worked for the Urban Institute, a renowned public policy think tank, and served in the Peace Corps.

Chris LaRosa ‘08

Executive Director, Government & Industry Association Relations / CME Group

Chris LaRosa '08 is an industry and government affairs executive with the world’s leading commodities and financial futures exchange. He manages engagement with multiple legistative bodies and regulators within the U.S. and globally. He facilitates integration of business and public policy strategies across CME Group’s product areas, international alliances, and business development initiatives.

Faculty Affiliates

Eric T. Anderson
Hartmarx Professor of Marketing; Director of the Center for Global Marketing Practice

David Austen-Smith
Peter G. Peterson Chair in Corporate Ethics; Professor of Managerial Economics & Decision Sciences; Director, Ford Motor Center for Global Citizenship; Chair of Managerial Economics & Decision Sciences Department

Meghan Busse
Associate Professor of Strategy

David Chen
Adjunct Professor of Finance; Program Director of Impact Investing

Lawrence J. Christiano
Alfred W. Chase Chair of Business Institutions, Weinberg College of Arts & Sciences; Professor of Finance

Georgy Egorov
Associate Professor of Managerial Economics & Decision Sciences

Timothy Feddersen
Wendell Hobbs Professor of Managerial Politics; Professor of Managerial Economics & Decision Sciences

Mark Finn
Clinical Professor of Accounting Information & Management

Michael J. Fishman
Norman Strunk Professor of Financial Institutions; Professor of Finance
Craig Furfine
Clinical Professor of Finance

Robert Gordon
Stanley G. Harris Professor in the Social Sciences, Weinberg College of Arts & Sciences; Professor of Economics

Kent Grayson
Associate Professor of Marketing; Bernice and Leonard Lavin Professorship

Kathleen Hagerty
Senior Associate Dean of Faculty and Research; First Chicago Professorship in Finance; Faculty Director of PhD Program; Professor of Finance

Liz Livingston Howard
Clinical Professor of Executive Education; Director of Nonprofit Executive Education

Edward F.X. Hughes
Professor of Strategy; Professor of Preventive Medicine, Feinberg School of Medicine (Courtesy)

Ravi Jagannathan
Chicago Mercantile Exchange/John F. Sandner Professor of Finance; Co-Director, Financial Institutions and Markets Research

Benjamin F. Jones
Gordon and Llura Gund Family Professor of Entrepreneurship; Professor of Strategy; Faculty Director, Kellogg Innovation and Entrepreneurship Initiative (KIEI)
Brayden King
Max McGraw Chair in Management and the Environment; Professor of Management & Organizations; Chair of Management & Organizations Department

Philip Levy
Adjunct Professor of Strategy

Sarit Markovich
Clinical Associate Professor of Strategy

Peter H. McNerney
Adjunct Lecturer of Finance

Dylan Minor
Assistant Professor of Managerial Economics & Decision Sciences

Joel Mokyr
Robert H. Strotz Professor of Arts and Sciences and Professor of Economics and History, Weinberg College of Arts & Sciences

Ameet Morjaria
Assistant Professor of Managerial Economics & Decision Sciences

Kara Palamountain
Research Associate Professor within Kellogg's Public-Private Interface Initiative (KPPI); Lecturer of Global Health

Nicola Persico
John L. and Helen Kellogg Professor of Managerial Economics & Decision Sciences; Director of the Center for Mathematical Studies in Economics & Management
Mitchell A. Petersen
Glen Vasel Professor of Finance; Director of the Heizer Center for Private Equity and Venture Capital

Robert Porter
William R. Kenan, Jr. Professor

Alvaro Sandroni
E.D. Howard Professor of Political Economy; Professor of Managerial Economics & Decision Sciences

Paola Sapienza
Donald C. Clark/HSBC Chair in Consumer Finance; Professor of Finance

Mark Satterthwaite
A.C. Buehler Professor in Hospital & Health Services Management; Professor of Strategy

Juliet Sorensen
Clinical Associate Professor of Law, Northwestern School of Law; Clinical Associate Professor of Strategy

Jörg Spenkuch
Assistant Professor of Managerial Economics & Decision Sciences

Amanda Starc
Associate Professor of Strategy

Adam Waytz
Associate Professor of Management & Organizations

Klaus Weber
Associate Professor of Management & Organizations   

In the News

In the Age of Trump, B-Schools Brace for Upheaval

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Kellogg Insight

Explore Policy perspectives at Kellogg Insight.
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Recent news in Policy

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Public-Private Projects Where the Public Pays and Pays

Article examines the pros and cons of public-private partnerships, quoting Professor David Besanko on these types of projects can cost the public in the end through road tolls or government payments to contractors. “Taxpayers or users are going to need to pay for private infrastructure just as they need to pay for public infrastructure.” David’s quote was published in the The New York Times a second time here.

New York Times, 06 Jun 2017

Kellogg on Policy: Exploring consumer finance and fintech

“It’s an exciting time to be in the so-called boring world of banking,” said Thomas Curry, comptroller at the U.S. Office of the Comptroller of the Currency (OCC). Delivering keynote remarks on the second day of the Kellogg Public-Private Interface (KPPI) conference on Consumer Finance and Fintech, he pointed to radical new technologies—from advanced data analytics to artificial intelligence—that are converging in the financial sector. “Based on the volume of change coming at us today, we are in the midst of a very large wave of potential progress.”

Virtually every facet of the financial industry is grappling with both threats and opportunities presented by emerging technology. Computing power and automated processes, for instance, promise the world of finance huge gains in efficiency. But a host of other questions—how ought governments regulate new financial technologies, or fintech? How much security can consumers expect from new methods of exchange?—have sparked important debates. “We want to facilitate innovation and competition while explicitly addressing the risks,” said Lael Brainard, Governor at the Federal Reserve Board and former Undersecretary of the Treasury. “I don’t yet feel like the guardrails are [sufficiently] secure or well understood to make sure this entire ecosystem can flourish.”

The two-day conference (April 27-28) convened the two main financial regulators (the Federal Reserve and the OCC) with leaders from financial services and academia to discuss the powerful forces pushing change, as well as the difficult balancing act between innovation and safety—both consumer and systemic—that faces firms and regulators. “Progress requires informed and open conversation between leaders in business, academics, and public policy to navigate a complex and rapidly changing environment,” said Janice Eberly, the conference organizer, James R. and Helen D. Russell Professor of Finance, and Faculty Director of KPPI.

Outlined below are four major takeaways from the conference.

The benefits of efficiency

Peter Cherecwich, President of Corporate & Institutional Services at Northern Trust, recently oversaw a yearlong automation of the company’s private equity administration process. (IBM helped plan and execute the project.) "Administration for Private Equity is manually intensive, with paper based legal agreements and capital calls taking a significant amount of time to draft, execute, and audit." Cherecwich said. By automating this contractual roundabout with distributed ledger technology (or blockchain as it is commonly known and made famous as the technology basis for the electronic currency Bitcoin,) he plans on automating roughly 30 percent of the fund administration job. This, in turn, means cost savings for all as the data is available in an electronic and immutable form. “For every player along the chain, including investors, costs will decrease and profits will go up; that is progress from my perspective.”

Despite the complexity of implementing this technology, Cherecwich noted that the core challenge was not actually creating the platform, but building support for the transition, both internally and externally. “You need to get people accustomed to it, and get governments to recognize it.”

These increases in efficiency have not only benefited big financial players, but also smaller institutions; in many ways, new technology even favors the agility of small companies, which can capitalize on innovation much more quickly. “It seems that many of these technological benefits have shifted to small institutions in recent years,” said Steven Chaouki, executive vice president of financial services at TransUnion. Take the consumer lending market, which was “eviscerated” coming out of the financial crisis. This dynamic opened room for small organizations to “leverage technology to provide for niche needs,” he said—something that could be done with far less capital than once was needed. “The elimination of scale in technology,” said Chaouki, “has allowed companies to be successful without a book of $300 billion, or $100 billion, or, frankly, even $5 billion.”

Avant is one example of this success. For decades, banks have relied on a few simple variables to determine loan eligibility. Avant, which was founded in December of 2012 and holds a $3.5 billion portfolio, scans far more broadly to match a loan to people in a way that banks might overlook. “A ton of data goes into making these decisions,” said Suk Shah (KSM 2012), Avant’s chief financial officer. “Our ability to use analytics and decision-making horsepower—and do it quickly—is the next-generation way of providing credit to consumers.”

Expanding access to financial services

Avant is one company among a vast array that has the potential to offer financial services to communities that are typically ignored.

Great opportunity exists across the country through mobile technology to reach underserved and underbanked markets, which are worth about $140 billion,” said Garvester Kelley, Community Development Director in the Community Development and Policy Studies Division of the Federal Reserve Bank of Chicago.

The people in these communities typically rely on payday lenders or check-cashing companies, which charge exorbitant fees for simple financial services, he explained. If those fees could be reduced through the use of innovative fintech products, it would be good for both the consumer and the company offering the product.

But Kelley did not downplay the risks to consumers. Banks today are FDIC-insured, and the funds in customer accounts are therefore covered. As small fintech firms offer products traditionally provided by banks, funds associated with the transaction that the new product enables might not be insured. So what happens to the consumers’ money if the fintech company suffers a major financial collapse?

Those who are economically disadvantaged are the last to recover if there is some type of financial crisis, Kelley explained. “We found that out in the last recession,” he said. “Plenty of concerns remain despite the opportunity that this technology brings.”

The role of regulation

Regulation, of course, is one way to mitigate these concerns, but a delicate balance is required. Can government maintain space for innovation (and failure) while expanding access to underserved markets and protecting consumers?

There was widespread agreement throughout the conference that the question of regulation was necessary, complicated, and also unanswered. “Fintech fundamentally challenges our current regulatory regime,” said Aaron Klein, policy director at the Brookings Institution’s Center on Regulation and Markets. “We want to democratize access to capital, but the business of investing and the business of being scammed often overlap.” So how and where can the government effectively intervene without muzzling innovation?

In one specific instance—algorithmic trading, in which algorithms rather than people allocate investment portfolios—Joshua Rogers from Arete Wealth Management suggested the government adopt standardized guidelines similar to air safety protocols. “The SEC should take a lesson from the FAA,” he said “When you fly an airplane there is a set of steps that every mechanic has to follow—and those sets of steps are determined by ISO-9000.” A similar rulebook on some fintech processes, he suggested, should be adopted.

The open question of security

Tied closely to regulation were questions of security: how can fintech protect assets in a much more diffuse market. “We’re at a very fragile moment,” said Gareth Jones, cofounder and managing partner of the FinTech Collective. “There are people whose job it is in Washington to figure out what to do when we wake up one day and everyone’s bank account says zero.”

But the challenge of security, noted Caitlin Long of Symbiont, is not new. Counterfeit coins have been found contemporaneous with some of the world’s oldest money. “Let’s face it: there is no absolute guarantee of security in anything,” she said. “But from a relative security perspective there is no doubt that new technologies, like distributed ledger, are safer.”

Beyond the challenge of security, the overwhelming sentiment was one of promise: innovation is inherently risky. Moreover, risk in the financial system can be costly not only to individuals, but to the economy and society. Hence, innovation must be balanced with a focus on safety and access. But there is the potential for a more efficient and accessible financial future.

23 May 2017

Data Plays

Article discusses the deconstruction of the FinTech industry, and points to the breadth and depth of presenters at the April 28th at the Kellogg Fintech Conference: “Fintech and the Future of Finance.”

FinTech Rising, 01 May 2017

Four Keys To Renegotiating NAFTA

Article by Adjunct Professor Philip Levy discusses President Trump’s decision to renegotiate NAFTA, offering four crucial components to the renegotiations: reasonable objectives, personnel who are qualified to negotiate, consistent direction from the White House, and congressional approval.

Forbes, 30 Apr 2017

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    Insight: Policy