[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]



                    CONNECTING COMMUNITIES: BUILDING
                  INNOVATION ECOSYSTEMS ACROSS AMERICA

=======================================================================




                             FIELD HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON DIGITAL ASSETS,
                         FINANCIAL TECHNOLOGY,
                             AND INCLUSION

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION                                               
                               __________

                            DECEMBER 8, 2023
                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-62
                           
       
       
       
                           
             [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
                           
                           
                           
                           
                                ______

                  U.S. GOVERNMENT PUBLISHING OFFICE

55-206 PDF                WASHINGTON : 2024 




















                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                   Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
  Chairman                           JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director 
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                    SUBCOMMITTEE ON DIGITAL ASSETS, 
                  FINANCIAL TECHNOLOGY, AND INCLUSION

                    FRENCH HILL, Arkansas, Chairman

FRANK D. LUCAS, Oklahoma             STEPHEN F. LYNCH, Massachusetts, 
TOM EMMER, Minnesota                   Ranking Member
WARREN DAVIDSON, Ohio, Vice          BILL FOSTER, Illinois
  Chairman                           JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 RITCHIE TORRES, New York
BRYAN STEIL, Wisconsin               BRAD SHERMAN, California
WILLIAM TIMMONS, South Carolina      AL GREEN, Texas
BYRON DONALDS, Florida               SEAN CASTEN, Illinois
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
ERIN HOUCHIN, Indiana 





















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 8, 2023.............................................     1
Appendix:
    December 8, 2023.............................................    27

                               WITNESSES
                               
                        Friday, December 8, 2023

Loganathan, Ravi, Head, Financial Institution Service, Sardine; 
  and President, SardineX........................................     9
Marshall, Susannah, Bank Commissioner, Arkansas State Bank 
  Department; and Securities Commissioner, Arkansas Securities 
  Department.....................................................     4
Orduna, Arthur, Executive Director, The Venture Center...........     6
Wheelis, Joel, Senior Vice President, Products and Services for 
  Banking, FIS...................................................     8

                                APPENDIX

Prepared statements:
    Loganathan, Ravi.............................................    28
    Marshall, Susannah...........................................    34
    Orduna, Arthur...............................................    43
    Wheelis, Joel................................................    47

              Additional Material Submitted for the Record

Hill, Hon. French:
    Written statement of Bakkt Holdings, Inc.....................    52

 
                    CONNECTING COMMUNITIES: BUILDING 
                  INNOVATION ECOSYSTEMS ACROSS AMERICA

                              ----------                              

                        Friday, December 8, 2023

                         U.S. House of Representatives,
                            Subcommittee on Digital Assets,
                                      Financial Technology,
                                             and Inclusion,
                               Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9 a.m., at The 
Venture Center, 417 Main Street, Little Rock, Arkansas, Hon. 
French Hill [chairman of the subcommittee] presiding.
    Members present: Representatives Hill, Flood, and Nickel.
    Chairman Hill. The Subcommittee on Digital Assets, 
Financial Technology, and Inclusion will come to order.
    I want to thank all of our witnesses for being here, and I 
want to thank my colleagues for coming to Little Rock for this 
great opportunity.
    I now recognize myself for 4 minutes for an opening 
statement.
    In the House today, in the Financial Services Committee, 
this is a big day, not only because we are having a hearing 
here in Arkansas, my home State, but it is also the first field 
hearing of this Congress for the Financial Services Committee. 
In my view, there is no better way to start the committee's 
field work than by examining the benefits that financial 
technology is bringing to communities and Americans across our 
country.
    As history has shown, financial innovation is the lifeblood 
of the United States and has been, certainly, for the past 75 
years. As fintech continues to expand and develop, we have 
reached a critical inflection point where it is embedded in 
communities across the United States, including right here in 
Little Rock. In Arkansas alone, companies raised a record $201 
million in venture capital in 2022, an 87 percent jump from 
$107 million in 2021.
    Here at The Venture Center, 40 percent of the companies 
that participated in FIS's Fintech Accelerator in 2022 were run 
by women. This growth is impressive, and we would be remiss not 
to give credit to the efforts of all of the witnesses sitting 
before us today.
    Because of Commissioner Marshall, Arkansas banks of all 
sizes are able to safely and successfully integrate fintech 
products and services into their offerings for customers. 
Because of Arthur and Joel's collaboration, up-and-coming 
fintech companies like our guests' are able to build and 
develop in an environment that wants them to succeed and is 
willing to provide the necessary guidance and resources to 
ensure that success.
    And last, but most certainly not least, because of Mr. 
Loganathan and those like him, the benefits of fintech know no 
boundaries here in the United States.
    With our deep roots in fintech, including the founding of 
Systematics over 5 decades ago, I am proud of the fintech hub 
that Little Rock has become, and I am eager to share my State's 
progress with my great friends and colleagues who are with me 
today; Mike Flood from Nebraska; and Wiley Nickel from North 
Carolina. Also, I want to say greetings to my friend, Stephen 
Lynch, who is the ranking member of this subcommittee, and is 
from Boston. He is hosting a Cabinet Member in Boston today so 
he could not be with us.
    With that, I thank my friends for being with us, and I look 
forward to the testimony of the witnesses. And I now recognize 
Mr. Nickel for 5 minutes for his opening statement.
    Mr. Nickel. Thank you so much, Chairman Hill, for convening 
our subcommittee here in Little Rock. It is a wonderful 
pleasure and an amazing honor to be here in Little Rock for 
this field hearing.
    Our focus today is on innovation, and I am very proud of my 
State, North Carolina. It is something that we do very well. My 
district benefits heavily from North Carolina's Research 
Triangle Park. It is a prominent, high-tech research and 
development center renowned for its concentration of innovative 
companies and academic collaborations.
    Thanks to Chairman Hill, I have learned that Little Rock is 
emerging as a significant innovation hub for fintech companies, 
attracting a diverse range of both startups and established 
firms with its supportive business environment and growing 
technology ecosystem. Much of this is thanks to our host today, 
The Venture Center of Little Rock. I am very much looking 
forward to hearing more about the work you do here.
    Fintech companies are vital in driving economic growth by 
introducing innovative financial services and technologies that 
enhance efficiency and accessibility in the financial sector. 
Their emphasis on digital solutions democratizes financial 
services, allowing underserved and unbanked populations to 
access banking loans and investment opportunities, thus 
promoting financial inclusion.
    Furthermore, fintechs stimulate job creation and foster a 
competitive environment that encourages traditional financial 
institutions to innovate and improve their services, 
contributing to overall economic development. As members of the 
Financial Services Committee, it is our responsibility to 
foster an environment where fintechs can thrive while never 
losing sight of consumer protection.
    I yield back.
    Chairman Hill. The gentleman yields back. Mr. Flood, you 
are now recognized for 1 minute.
    Mr. Flood. Thank you, Mr. Chairman. I want to start by 
commending the Chair for having a field hearing here in Little 
Rock. It is nice to get out of Washington, D.C., and actually 
see where the rubber meets the road.
    This City, as I understand it, is steeped in history, a 
cultural melting pot, and is the perfect example of the kind of 
community that punches above its weight when it comes to its 
spirit of economic innovation.
    I was at your museum last night, your arts center, and it 
was unbelievable. We walked through the collection. We had a 
wonderful dinner. At the time I was there, there were different 
events going on. There was a Young President's Organization 
(YPO) group, there was a concert, there was our dinner, and 
there were others, and people were mixing and enjoying life. I 
do think that having a vibrant arts culture, with public art, 
and the effort to bring density into your downtown, are some of 
the key hallmarks of a community that wants to grow in this 
space.
    We are here today because towns like Little Rock, Arkansas, 
should get every single opportunity to partake in the 
innovation economy. Innovation should not just happen in 
Austin, Boston, and San Jose; it belongs in every single State 
in America. In fact, if we do not get into innovation, we will 
be left behind. So, the efforts of our chairman here, your 
community leadership and businesses, and most importantly, 
entrepreneurs, are very important.
    Today, too many young people are taught not to take a risk. 
We have them in sports from 6 in the morning until 10 at night, 
and they know what they are told to do by the time they are 19-
years-old. They do not ever think about taking risks. And the 
reality is that 8 to 8\1/2\ out of 10 startups fail, and we 
need to remind people in America that there is merit in 
failure. It means you tried, it means you learned something, 
and you can use those failures to become successful down the 
road.
    Projects like this make a big difference, and if you are a 
smart kid growing up in Arkansas or Nebraska, we need towns 
like this to take those smart kids who come off the farm or 
from a rural area and bring them to a town like Little Rock and 
let them thrive.
    I always tell people in Nebraska that we raise the gold 
that the rest of America wants to hire as a CEO. You do the 
same here in Arkansas. You raise these young people with 
integrity, you raise them with honesty, and you teach them so 
well in your schools that in towns like Little Rock, or maybe 
in their hometown, they can start a business and they can 
thrive. We just need to make sure that the young people of 
Arkansas, like Nebraska, know that there are opportunities for 
them in a place like this.
    I will close by again thanking the chairman. He came to 
Lincoln, Nebraska, to headline my Flyover Fintech event in 
August at the University of Nebraska-Lincoln, and he gave a 
dynamic speech. I think, underpinned by what he has seen here 
in Little Rock, it was right on par for what we were looking 
for. And I am excited to be in Little Rock. I love this.
    The other thing I would say is that this does not happen 
because you followed some checklist. This is very hard to 
create, and there is no roadmap for this. You have to invest in 
entrepreneurs, you have to find the capital for at-risk 
business ventures, you have to put all the people in the same 
room, and ultimately, the entrepreneurs have to run it. And I 
am hopeful that today--and I am sure I will--I will learn all 
about how you have accomplished this and learn what it is 
producing for the good people of Arkansas.
    With that, I yield back.
    Chairman Hill. The gentleman yields back.
    Today, we welcome the testimony of; Commissioner Susannah 
Marshall, the 22nd Commissioner of the Arkansas State Bank 
Department, and the 19th Arkansas Securities Commissioner; Mr. 
Arthur Orduna, the executive director of The Venture Center 
here in Little Rock, which is an organization dedicated to 
helping entrepreneurs and startups become high-growth 
businesses, and is our gracious host today; Mr. Joel Wheelis, 
the senior vice president and head of products and services for 
banking at FIS Global--he has his FIS green tie on today--a 
leading provider of fintech software solutions for banks and 
payments and investments, and also partners with The Venture 
Center, and is the host of our FIS Fintech Accelerator Program 
here in Little Rock; and Mr. Ravi Loganathan, the head of 
financial institution services at Sardine, and the president of 
the SardineX Consortium, a real-time fraud database that brings 
together a variety of entities in the financial services space 
to combat and share data about fraud on platforms--his 
companies are also graduates of the Fintech Accelerator, so 
that is to be congratulated.
    We thank each of you for taking the time to be with us 
today. Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony, and without objection, 
each of your written statements will be made a part of the 
record.
    We are honored to kick it off with my friend, the 
Commissioner. Commissioner Marshall, you are recognized for 5 
minutes.

     STATEMENT  OF   SUSANNAH   MARSHALL,  BANK  COMMIS-
       SIONER, ARKANSAS STATE BANK DEPARTMENT; AND SECU-
       RITIES COMMISSIONER,  ARKANSAS SECURITIES DEPART-
       MENT

    Ms. Marshall. Thank you, and good morning. Chairman Hill, 
Representative Flood, and Representative Nickels, it is my 
sincere privilege to speak with you today. I would like to 
thank the House Financial Services Committee's Subcommittee on 
Digital Assets, Financial Technology, and Inclusion for 
convening this important hearing.
    My name is Susannah Marshall, and I serve as the Bank 
Commissioner for the Arkansas State Bank Department, and the 
Securities Commissioner for the Arkansas Securities Department. 
I appreciate the opportunity to share how States, particularly 
Arkansas, are actively engaged with all stakeholders in the 
financial technology landscape.
    As a State regulator, I have a unique vantage point to both 
the bank and nonbank industries. In Arkansas, we continue to 
develop and enhance our existing relationships with these 
industries in order to gain further awareness around innovation 
technology within the financial services arena. We foster 
opportunities for outreach and partnership with discussions on 
fintech firms and third-party providers. And lastly, we strive 
to work collaboratively within the regulatory industry to 
achieve consistency and provide resources to create thoughtful 
and appropriate oversight for the future of financial 
technology. Creating an environment of responsible innovation 
enhances local economic development, market competition, and 
safety for consumers.
    My agency has made financial innovation in our institutions 
a topic of discussion. We believe it is important to encourage 
our regulated entities to explore and adopt innovative 
technology in a strategic, safe, and thoughtful manner. State 
regulators understand the significant role technology plays in 
banks' abilities to provide excellent products and services and 
meet the needs and demands of all customers, including both 
businesses and individuals.
    The State Bank Department, at the request of our banks, has 
joined in direct conversations with banks and fintech firms, 
which the bank is evaluating for business opportunities and 
partnerships. We wholly believe these introductory 
conversations are impactful and yield positive results for all 
parties, and we actively support this engagement.
    Across the country, other State regulators are holding tech 
sprint events, where interested parties collaborate on ways to 
develop a longstanding relationship with firms such as The 
Venture Center, and other partnerships such as the FIS Fintech 
Accelerator, hosted here in Little Rock, as well as in other 
cities and States in this country. I, along with other key 
members from the State Bank Department, have participated in 
The Venture Center's Fintech Summit, which has spotlighted the 
great work and success happening within the fintech sector.
    In terms of regulatory collaboration, I have had the 
pleasure of joining other regulators as participants in The 
Venture Center's early audiences, availing all of us with the 
opportunity to learn more about the program and its 
participants and affording us the ability to offer critical 
feedback and thoughtful suggestions on how these products and 
services may ultimately become part of an institution's 
portfolio.
    As incubators of innovation, States have experience with 
developing regulatory approaches for emerging financial 
services. For example, the Conference of State Bank Supervisors 
(CSBS) formed several advisory and working groups involving 
fintech industry representatives to enhance State regulator 
coordination and focus on risks, while minimizing regulatory 
burden.
    Since 2019, I have served on the CSBS Fintech and 
Innovation Steering Group (FISG) with State bank regulators 
from across the country. These group members meet regularly to 
discuss fintech and other financial services innovations and 
how best to help shape potential bank and nonbank regulation.
    In June of this year, the Federal bank regulators issued 
joint interagency guidance for banks managing the risk of 
third-party relationships, including those with fintechs. This 
guidance is aimed at eliminating unnecessary confusion by 
harmonizing supervisory views on relationships with third-party 
vendors. State regulators are well-positioned to marry the 
consumer benefit of new technologies with consumer protection, 
and we must not be impediments to safe, sound, and thoughtful 
implementation and adoption of financial technology by the 
industry. With the majority of customer-facing technology being 
outsourced to third-party vendors, this work is more important 
than ever.
    In closing, the financial services industry has been and 
should continue to be the foundation for innovation. 
Technological innovations can increase a bank's ability to 
reach and serve the needs of unbanked or underbanked consumers 
and communities. And as we witnessed in the recent pandemic, 
there was an accelerated utilization of technology for 
increased access to financial services.
    I am very proud of the important work that is happening 
here in Arkansas, specifically at The Venture Center, and how 
it serves as a model for financial services innovation across 
the country. With a rich history in entrepreneurship and 
economic development, a legacy of innovation and financial 
technology, a favorable business environment, and a thriving 
banking community, it is no surprise that Arkansas is home to 
its own Fintech Accelerator.
    On behalf of the State regulatory and financial services 
systems, I want to thank you for the invitation to speak, and I 
look forward to answering any questions you may have.
    [The prepared statement of Commissioner Marshall can be 
found on page 34 of the appendix.]
    Chairman Hill. Thank you, Commissioner.
    Mr. Orduna, you are now recognized for 5 minutes for your 
oral remarks.

      STATEMENT OF ARTHUR ORDUNA, EXECUTIVE DIRECTOR, 
                    THE VENTURE CENTER

    Mr. Orduna. Thank you. Good morning, Chairman Hill, 
Representative Flood, Representative Nickel, and members of the 
subcommittee. My name is Arthur Orduna. It is my privilege as 
executive director of The Venture Center to give this statement 
on the importance of building and supporting innovation and 
entrepreneurship ecosystems at the local, State, and regional 
levels in America, with Arkansas and the work of The Venture 
Center and its partners as an example of public-private 
collaboration and initiatives that generate meaningful and 
measurable economic benefits to communities and businesses. I 
would like to give a shout-out to my teammates who have made 
this hearing possible today, and thank them for all of their 
hard work.
    The Venture Center is a nonprofit 501(c)(3) Entrepreneur 
Support Organization (ESO) based in Little Rock, Arkansas. We 
were founded 10 years ago with the mission of accelerating 
success for startup founders, small business owners, and 
corporate innovators through entrepreneurship programs, 
platforms, and partnerships. Our vision is to help raise 
Arkansas to regional, national, and global leadership in 
entrepreneurship and economic prosperity.
    Over the last 10 years, early-stage and growth companies 
which have gone through our startup and business-driven 
accelerator programs--especially through our Fintech 
Accelerators which are done in partnership with FIS and 
community, State, regional, and national banks--have raised 
more than $2.5 billion of private capital, with an average 
funding raise of $17 million. Despite capital market 
challenges, more than 85 percent of those companies are still 
in operation or have been acquired by entities still operating 
today. I welcome four of them here today as well.
    Our programs and their participants have generated more 
than $30 million in documented economic benefit to the State of 
Arkansas, including more than $1 million in tourism for central 
Arkansas and Little Rock. We have helped with the launch and 
relocation of technology-based companies in Arkansas, including 
10 in the fintech sector. This has led to the creation of more 
than 180 new, high-wage technology jobs in the State. Just this 
past year, we have congratulated two of our program alumni 
companies which were recently purchased by private equity for 
$30 million, and $300 million, respectively. As a result of our 
programs and activities, we have created a network of more than 
16,000 individuals, agencies, and companies who continue to 
support us.
    This last point is paramount: We could not execute our 
mission without partnerships from multiple sources. Critical 
support to help achieve these results has come from the 
corporate sector, as exemplified by our partnership with Little 
Rock-founded FIS, and banks such as Simmons Bank and Arvest 
Bank; from the municipal level, as exemplified by our 
partnerships with the City of Little Rock, the Mayor's Office, 
and the Chamber of Commerce; and the State level, as 
exemplified by our partnership with the Department of Commerce, 
and especially the Arkansas Economic Development Commission. 
Welcome to all members here today.
    We are also grateful for the support of our Federal 
officials and elected Representatives serving the people and 
communities of Arkansas, including the encouragement and 
support of Chairman Hill, a former Arkansas banker.
    I respectfully offer the following recommendations based on 
the experiences and challenges we have lived through here at 
The Venture Center. First, to other ESOs around the country, 
take a portfolio and business-driven approach to fostering 
innovation at the community level. In our view, a healthy 
community ecosystem comprises a pipeline across all of these. 
This has been a key reason for the success of our Fintech 
Accelerators.
    Next, to other State, county, and municipal governments and 
agencies, improve the level of innovation and entrepreneurship 
by improving our communities' quality of life. Great 
communities attract and grow great people. It is simple and it 
is true. My wife and I are from Des Moines, Iowa, and we 
strongly believe that the strong economic performance in 
central Iowa over the last several decades is based on the fact 
that it is a really good place to live and grow. The same is 
true of Little Rock, and Arkansas in general.
    Finally, to Federal Government legislators and agencies, 
work proactively and collaboratively to think through how to 
help at your level, with a commitment of multiyear funding to 
nonprofit Entrepreneur Support Organizations (ESOs). While this 
is a self-serving recommendation, my request encompasses all of 
the ESOs that share our mission in Arkansas, such as The 
Innovation Hub, Startup Junkie, Conductor, and others, as well 
as ESOs in the other 49 States. I suggest as a starting point, 
perhaps with this subcommittee in a leading role, to begin a 
dialogue with the ESOs and their key partners in your 
respective constituencies on identifying actionable initiative 
that may already be in flight.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Orduna can be found on page 
43 of the appendix.]
    Chairman Hill. Thank you.
    Mr. Wheelis, you are now recognized for 5 minutes for your 
oral remarks.

       STATEMENT OF JOEL WHEELIS, SENIOR VICE PRESIDENT, 
            PRODUCTS AND SERVICES FOR BANKING, FIS

    Mr. Wheelis. Chairman Hill and members of the subcommittee, 
my name is Joel Wheelis, and it is my privilege as senior vice 
president of products and services for banking at FIS to 
testify before you today to highlight the importance of 
building financial innovation ecosystems throughout the United 
States.
    Based in Jacksonville, Florida, with a significant 
footprint here in Little Rock, FIS is one of the world's 
largest and oldest financial technology companies, facilitating 
commerce across the global financial system. We enable 95 
percent of the world's largest banks, move over $10 trillion of 
payments annually over 1.3 billion payment cards, and process 
1.5 times the U.S. GDP on our asset management technology.
    By providing a range of services to participants across the 
financial services value chain, we have a uniquely 
comprehensive position in the market and a keen interest in 
fostering a vibrant startup ecosystem. In particular, FIS 
prides itself on its Fintech Accelerator Program, which 
identifies and advances startup fintech firms with high 
potential.
    The growth of the fintech sector--like any industry--
depends on supporting an ecosystem that connects capital, 
talent, infrastructure, and a conducive regulatory environment. 
Along with local partners like The Venture Center and the 
Arkansas State and local government, FIS supported the 
development of a world-class innovation ecosystem here in 
Little Rock.
    In 2016, FIS established the Accelerator to bridge the gap 
between our traditional financial institution clients and new, 
innovative fintech startups. We recognized that we could not 
possibly think of every solution to make our clients' 
experience better. Therefore, we sought to strategically invest 
in and support high-potential startups that facilitate product 
diversification and help our clients stay on the cutting edge 
of new technologies. Our community banking clients, in 
particular, have benefitted from the Accelerator ever since.
    Each year, we help select 10 innovative technology 
companies to advise, connect, and showcase their products and 
services to the financial industry leaders, potential 
investors, and successful engineers, as well as FIS financial 
institution clients.
    Since the Accelerator began, it has graduated 80 alumnus, 
90 percent of whom are still active or have been acquired. This 
includes companies such as BOND.AI, a company headquartered in 
Arkansas, and Trust Stamp, a company that recently completed an 
initial public offering (IPO). Their success not only benefits 
the local economy, but it also helps move the entire industry 
forward.
    Accelerators are critical for growing new fintech 
companies. However, successfully developing products and 
services that meet the evolving needs of consumers also 
requires active participation from government leaders. By 
engaging with lawmakers and regulators early, new fintech 
companies can quickly iterate and develop products to 
accurately reflect regulatory requirements and keep consumers 
safe.
    A principal way that regulators can participate in 
accelerating emerging technologies is by creating innovation 
sandboxes. A sandbox allows fintechs to develop and test 
products on a limited basis, without fear of regulatory 
reprisal, before going directly to the market, reducing the 
uncertainty of what may or may not be a feasible path forward. 
It also helps regulators build knowledge of new technologies 
and assess the potential application of existing law and 
regulation.
    FIS also encourages Federal, State, and local lawmakers to 
consider additional tools to reduce barriers and incentivize 
innovation. First, a clear legislative and regulatory framework 
must be in place to facilitate the ability of financial 
institutions to partner with and benefit from innovative 
fintech solutions. Second, talent development grant programs 
must receive investment and implementation guidance to support 
the growth of a strong local talent pipeline.
    And third, incentives such as tax breaks and grant programs 
should be considered to make cities and regions more attractive 
to investors, large corporations, and entrepreneurs. Venture 
capital funds are looking for high-quality, innovative 
companies with strong potential, irrespective of location. So, 
incentivizing development of local ecosystems like the one in 
Little Rock is a first step in raising awareness about 
investment opportunities.
    The public-private partnership in Little Rock demonstrates 
how financial institutions, startups, and regulatory bodies can 
cooperate to build a successful local ecosystem. The results 
have been more than impressive, leading to numerous benefits to 
FIS, our clients, the startups, and the economies of Little 
Rock and wider Arkansas. Over the past 8 years, FIS Accelerator 
alumni have raised more than $1.5 billion in capital.
    It is our hope that other State and local governments and 
convener organizations such as incubators can replicate this 
partnership model and generate economic growth and jobs, and 
attract talent transplants from around the world.
    Thank you again for the opportunity. I look forward to your 
questions.
    [The prepared statement of Mr. Wheelis can be found on page 
47 of the appendix.]
    Chairman Hill. Thank you very much.
    Mr. Loganathan, you are now recognized for 5 minutes for 
your oral presentation.

     STATEMENT OF RAVI LOGANATHAN, HEAD, FINANCIAL INSTI-
       TUTION SERVICE,  SARDINE; AND PRESIDENT,  SARDINEX 
       CONSORTIUM

    Mr. Loganathan. Thank you, Chairman Hill, and members of 
the subcommittee. I am Ravi Loganathan. I head up our financial 
institution business line at Sardine. I also head up our 
SardineX Consortium that brings together banks and fintechs to 
fight fraud. It is a privilege to be here today to discuss the 
crucial interplay between the traditional banking sector and 
the rapidly-evolving fintech industry, and the critical role of 
fostering innovative ecosystems across America.
    Sardine, in the fintech landscape, is making contributions 
to behavioral-based fraud detection compliance and risk 
management. Our mission is to revolutionize the way financial 
transactions are secured online, protecting all participants. 
Our diverse team, comprising industry veterans from 
institutions like Revolut, Coinbase, Zelle, PayPal, and Bank of 
America, brings a wealth of experience, enabling us to navigate 
the complex challenges in today's financial services sector.
    Our comprehensive suite of solutions are designed to 
address the nuanced demands of modern risk management. This 
includes our flagship offering in behavior-based fraud 
prevention, which utilizes a blend of device intelligence and 
behavioral biometrics to outsmart and preempt emerging threats. 
With over 200 clients across the globe, including fintechs and 
traditional financial institutions, Sardine monitors 
transactions with over $150 billion in transaction volume.
    In today's testimony, I aim to shed light on how risk 
management plays a critical role in facilitating collaboration. 
Additionally, I will highlight how regulators and accelerator 
programs are instrumental in bridging the gap between banks and 
fintechs, and facilitating collaboration.
    I will start on the risk management side by highlighting 
two solutions Sardine currently has in the marketplace: 
SardineX, which is the consortium that is helping bring 
together banks and fintechs; and our SponsorOS solution that is 
enabling community banks and credit unions to scale their 
Banking-as-a-Service (BaaS) offering.
    SardineX is pivotal in managing real-time counterparty 
risks, especially as the U.S. now moves to real-time payment 
and instant settlement with systems like FedNow, and Clearing 
House RTP. The utility allows parties and financial services to 
inquire about the entities conducting the transaction. Upon 
inquiry, Sardine provides signals under the framework of the 
Gramm-Leach-Bliley Act for fraud information sharing, and 
Section 314(b) of the USA PATRIOT Act for detecting money 
laundering activities. These insights are crucial for 
institutions to make informed decisions in real time, enhancing 
transaction security.
    Furthermore, Sardine is a member-run organization 
representing a diverse group of financial institutions and 
fintechs. Its operating rules and governance structure are 
ratified by its members, ensuring a collaborative approach to 
managing this critical utility.
    Now, I will turn to SponsorOS, which is tailored for 
Banking-as-a-Service. It is vital for helping regional and 
community banks scale programs, while effectively managing 
regulatory and reputational risks. It provides a uniform 
platform for fraud protection, compliance service, and risk 
management, indispensable for banks in automating control 
mechanisms for their fintech partners.
    SponsorOS also enables banks to proactively monitor fintech 
partner performance and mitigate compliance and regulatory 
risk, simultaneously empowers fintechs to comply with banks' 
program standards by implementing robust fraud detection and 
compliance systems. This two-fold approach not only streamlines 
operations but also ensures that both banks and fintechs adhere 
to higher standards of security and regulatory compliance, 
fostering a mutually-beneficial risk-aware partnership.
    The emerging threat of AI-enabled fraud, including 
generated phishing, deepfake identity theft, and automated 
social engineering, underscores the importance of our work. A 
united front with banks and fintech companies collaborating and 
sharing data is essential to counter these sophisticated 
threats that are emerging in the financial space.
    Regulators play an important role in setting the framework 
for collaboration and innovation, shaping how financial 
institutions and fintechs can work together effectively, while 
ensuring consumer protection and market stability. Enhancing 
the U.S. regulatory framework, perhaps through coordinated 
relief for the regulatory sandbox participants and universal 
standards, could foster a more innovation-friendly environment. 
Such regulatory enhancements would not only stimulate fintech 
innovation but also ensure a balanced ecosystem where risk 
management and consumer safety are paramount. The approach 
could draw inspiration from international models, especially in 
the U.K. and Singapore.
    Finally, the accelerator programs such as the one offered 
by FIS and The Venture Center are critical in building out the 
innovation ecosystem. Our experience in participating in this 
program last year was invaluable, providing Sardine with 
critical market insights, access to subject matter experts, and 
strategic connections with future customers. These programs are 
instrumental in propelling fintech startups and offering them 
resources to navigate the financial sector's complexities.
    To conclude, the dynamic financial sector necessitates a 
stronger partnership between banks and fintechs, with an 
emphasis on robust risk management. Such collaborations are 
essential for addressing challenges like AI-enabled fraud, and 
for leveraging technological advancements. By joining forces, 
we can forge a financial ecosystem that is innovative, 
inclusive, and secure.
    I look forward to this discussion and to your questions. 
Thank you.
    [The prepared statement of Mr. Loganathan can be found on 
page 28 of the appendix.]
    Chairman Hill. Thank you so much. We are now going to turn 
to Member questions, and as a warning to my colleagues, we will 
have multiple rounds. We will go until you run dry, Wiley. And 
I will start out and yield myself 5 minutes for questions.
    I will start with you, Commissioner Marshall. First, thanks 
for your leadership in the State. We are so grateful for your 
decades of service to our financial institutions here, and 
thanks for stepping up to be Securities Commissioner, too. That 
is no small task. I am proud of that.
    We had a hearing earlier this week on this issue of 
innovation in the regulatory agencies and the sandbox issue, 
because I think there has been a really mixed signal sent by 
the Biden Administration on that, vis-a-vis the Trump 
Administration when they were first getting started. So, we had 
all the agencies present. We had their heads of innovation 
there, the first time they had ever been invited to Congress to 
testify.
    And I thought it was pretty productive. The give-and-take 
was good. I think the most important thing was that we 
discussed oversight over this innovation sandbox arena at the 
regulatory agencies, and demonstrated what a mixed bag it is--
nothing really to brag about, I would say, but some baby steps. 
We asked them, ``Do you coordinate together? Do you have 
innovation together? Do you have a council that meets, not on a 
global basis, but just among yourselves,'' for example.
    But Commissioner, in August, the Federal Reserve 
established the Novel Activities Supervision Program, and sent 
out a very short, one-page memo to every financial institution 
and all of the State Commissioners. And in my view, it was 
meant to be targeting digital assets, crypto, and being 
cautious about that, really asking institutions to come get 
pre-approval to do something.
    As a long-time banker, I am not really used to pre-approval 
on routine matters. Do you think this Novel Activities Rule 
could create confusion, and do you think it has also challenged 
bankers, in that it goes beyond digital assets and crypto into 
just fintech, more generally?
    Ms. Marshall. Thank you, Congressman. I did follow the 
hearing earlier this week, and was proud to also see my 
counterparts across the regulatory system speak to what they 
are doing.
    Specifically to your question, the financial technology 
industry is moving so quickly, and will continue to move at a 
rapid pace. I believe the guidance and the requirement for 
things to be called a novel banking activity could perhaps lead 
to some confusion, but I think it is important that the banks 
and the regulatory industry are all at least ensuring that we 
are talking to each other. Because, as I said in my testimony, 
I think when fintech can be successful is when you have those 
early conversations. And maybe the prior approval part is not 
necessarily aligned with most community banks and their normal 
activities. Certainly, I think a traditional fintech activity, 
product and service--banks have been doing that for many, many 
years, and are doing it very well and very successfully.
    I think that is outside of the novelty idea, and I do not 
think that needs to be a pre-approval type of activity, because 
that is normal business operations, and I think we need to 
continue to foster that.
    There are some areas that may be certainly groundbreaking, 
areas which we have not seen as part of our financial services 
industry. So, I am hopeful that guidance, or the direction from 
the Federal regulators sheds some light on that, and we can 
come together to try to make sure we are all on the same page--
that is critical, as we have all said today--but not make that 
an area where we just clamp down on the opportunities for banks 
to advance, but ensure that they do so in a safe and sound 
environment.
    Chairman Hill. Have you seen a particular example over the 
past 5 years in your leadership where fintech really has 
allowed a community bank to thrive and expand safely and 
soundly [inaudible] or even improve their compliance 
operations?
    Ms. Marshall. Yes, sir. Arkansas banks come in a variety of 
sizes. I have banks that are right at $30 billion, and I have 
banks that are right at $30 million. And I believe that 
fintechs should not be categorized for one asset size or the 
other; they should be able to serve every type of institution, 
whether it is a rural bank in southeast Arkansas or a bank here 
in central Arkansas that has operations in 12 other States.
    I believe that all banks can be successful utilizing 
fintech. I believe it is also an opportunity for a small 
community bank, in a cost-effective and managed way, to reach 
new markets, or perhaps continue to serve markets where they 
previously felt they were unable to meet their consumers' 
needs.
    I have seen where fintech, and maybe it is a basic form of 
fintech, but when an institution that could not staff a full-
service branch in rural Bradley County, maybe they have an 
interactive teller machine or deploy the next generation of a 
financial banking app to reach those customers. I have seen 
that work firsthand, and I am very proud that our banks are 
adopting advances in technology.
    Chairman Hill. Thank you. Those are good examples. My time 
has expired. The gentleman from North Carolina, Mr. Nickel, is 
recognized for 5 minutes.
    Mr. Nickel. Thank you. Mr. Orduna, given your expertise at 
The Venture Center, how do you see fintech startups 
specifically contributing to economic growth, and what areas of 
financial innovation hold the most promise for future 
development?
    Mr. Orduna. Thank you for the question. I will start with 
the fintech sector and not looking at the past but looking 
ahead.
    My teammates and I are starting to work with members of the 
Arkansas Bankers Association, beginning in the community banks 
and in the rural areas, to try to identify the priorities and 
the problems of two types of customers: one is obviously the 
borrowers that they are serving; and the other is their 
internal customers. How can they be more efficient? How can 
they deal with new technologies? And I have to tell you, for 
example, when talking to Brad Chambless and his folks down at 
Farmers & Merchants, the word, ``fintech,'' is scary.
    And thinking about technology in general, we need to 
actually translate that into prioritized problems and 
opportunities that begin with the communities. I know those are 
nice words, but that is what we take, working with banks and 
with financial institutions and providers to actually identify 
who are the right kind of technology providers, whether it is 
Sardine, BOND.AI, Securitech, or BankLabs, to come in and work 
directly with those community banks, and for them and their 
customers.
    And so, Mr. Nickel, that actually translates directly not 
just into a good funding round for the startups, which is 
great, but it actually translates straight into new products 
and new services that are going to help folks, hopefully like 
Brad and his team, to provide more growth to that community. 
That is the end game.
    Mr. Nickel. And that is a good transition to my next 
question. As we go back to Washington, what are the things we 
should be doing to help encourage more accelerator and 
incubator programs like yours here, nationwide?
    Mr. Orduna. That's a great question. I have been in the 
corporate world more than I have been on the side of light and 
goodness--just kidding--so I saw the wave, more than a decade 
ago, of some real excitement about providing entrepreneurship 
support into the center of the country. Steve Case did a great 
job of getting things started. I know we have seen a bump in 
some capital investment in some of these areas, but is not 
enough. And it has not been sustainable.
    Mr. Nickel, I suggest that we start a dialogue, and I think 
what I would strongly suggest to those folks in D.C. is to 
begin that dialogue with exactly what is happening here. Begin 
it at home. Because there are a lot of initiatives and a lot of 
ideas of the folks who are sitting here that need your level of 
support.
    Now, that support could be just recognition that there is 
some programming already, or funding that is in flight, that is 
applicable, or it could be something novel and new. But I 
believe that having these kinds of issues--Representative Hill 
had a town hall here earlier in the year. We would like to 
replicate that and actually bring in a bit more of the 
opportunities.
    I believe it begins with your constituency, quite frankly.
    Mr. Nickel. Thanks so much. I am going to come back to more 
specific stuff in the next round of questioning and talk with 
you about accredited investors.
    But Commissioner Marshall, I really enjoyed speaking with 
you earlier and wanted to dig in on another issue here. From a 
regulatory perspective, what are the key challenges and 
opportunities that you are seeing in overseeing fintech 
companies?
    Ms. Marshall. Overseeing institutions that are working 
with----
    Mr. Nickel. Yes.
    Ms. Marshall. Thank you, sir. Yes, sir. As we are visiting 
with our institutions, I do not want to make it sound like the 
list of obstacles is longer than the list of opportunities, but 
maybe that is what we hear the most.
    Mr. Nickel. We get those complaints a lot.
    Ms. Marshall. We certainly hear conversations about, how 
are these products and services going to integrate with our 
core service providers, which is a critical piece to every 
financial institution, and becoming more so every day. Is the 
adoption, is the acceptance going to be supported by staff as 
well as the customer base, on a larger scale? Do the banks have 
the necessary staff to really engage in participating with 
certain fintech firms? What are the compliance risks? What is 
the cost, the onboarding cost, and the maintenance cost? Do we 
have a potential risk for cyber or other IT-related issues? And 
then, of course, do we have the management structure to 
continue to maintain it?
    But the opportunities they see are reaching new sectors, 
new communities, and new markets. They may have an opportunity 
to experiment with a different product or service on a smaller 
scale that is more cost-efficient, actually, and then make the 
determination to exit that strategy, if need be. And, of 
course, reaching individuals who may not be able to access 
products and services in a timely fashion.
    Mr. Nickel. Thank you. I yield back.
    Chairman Hill. The gentleman yields back. Mr. Flood, you 
are recognized for 5 minutes.
    Mr. Flood. Thank you, Mr. Chairman, and I am going to hold 
my questions about The Venture Center to my next round, but to 
Mr. Wheelis and Mr. Loganathan, I want you each to react to two 
different topics that came up during your testimony. The first 
one is, I want to talk about cyber tech, cybersecurity, and I 
want you to react to the idea of biometrics being fooled by 
deepfake AI. I can turn my phone on by having it look at my 
face. I also do that to get into my bank account, and into my 
Marriott Bonvoy account. Is innovation happening in that space, 
and if so, what is happening?
    And the second topic I would like to hear from you both on 
is decentralized finance (DeFi). When I engage on Twitter with 
younger folks in my district and all over the nation, they 
continue try and bring the conversation back to this concept of 
self-custody, DeFi. These are two very different topics, but I 
would like to give you each 2 minutes to react to the 
cybersecurity, AI deepfakes, and then, what do you think about 
DeFi, where is it going, is it real, and is this something we 
are going to deal with in this decade?
    We will start with Mr. Wheelis.
    Mr. Wheelis. Yes. As far as cyber and deepfake, that is 
absolutely a point that we must all stay on top of as we 
innovate and move forward. FIS invested a tremendous amount of 
money, obviously, to try to protect--as we mentioned earlier, 
we have seen hacking attempts. We have seen successful hacks in 
certain areas. We know that is going to be where the industry 
goes, and we know that we are barely on the front edge of it 
right now. So, I think the investment is paramount.
    I think that you will see more sophisticated attacks, 
obviously, with generative AI. It is going to make it easier 
for the bad actors to implement their threats. As far as cyber 
moving forward, it is just going to be one of our primary 
focuses. There is no doubt about it.
    Mr. Flood. Okay. Mr. Loganathan?
    Mr. Loganathan. Yes. Thank you, Congressman, for the 
question. Let me answer your first part of the question around 
emerging threats, particularly with cyber, AI-driven threats. 
Particularly with the advent of AI, what is going to happen in 
terms of fraud vectors is that it is going to be automated at a 
scale much higher than what you see today. So, if you look at 
all the data breaches we had over many years, that data is now 
available on the Dark Web. And now, with AI, those AI can be 
trained on that information to create synthetic identities, and 
hence, you are now able to attack institutions at a much faster 
pace. So, that is a significant threat.
    The AI tools are being enabled not only by individual 
actors but by organized crime, and, as you also know, there are 
state actors now involved who are beginning to challenge our 
critical infrastructure, not only in banking but in health care 
and utilities, for example. The last 2 weeks are a pretty good 
example with which I think you all are very familiar.
    This is why, as we think about risk management moving 
forward, not only in banking but across other sectors, we have 
to fundamentally reimagine our detection capability. Our 
detection capability today, the majority of these financial 
institutions are backward-looking risk models. That is no 
longer sufficient. You need real-time risk assessment that 
brings in your device, your behavioral biometrics, your cross-
bank transaction data, third-party signals to, in real time, 
risk-assess that transaction.
    And what I fear is that many of our institutions are not 
ready for what is coming, and what AI is doing is simply 
accelerating that threat, because now the fraud attacks and 
fraud vectors can be done on a much larger scale.
    Mr. Flood. I appreciate that answer. DeFi?
    Mr. Loganathan. And on the DeFi side, DeFi is here to stay. 
I think as we evolve and work through the kinks, from a risk 
management standpoint--and the regulatory agencies have done a 
great job in addressing those risks, and you have seen some of 
those events in the last year-and-a-half to 2 years--DeFi, 
digital wallets is here to stay. Digital currencies are here to 
stay, and it is going to be a mechanism by which the next 
generation is going to transact. I think we all need to be 
prepared in terms of how we are going to address that from a 
risk management standpoint, and I think that is the work that 
needs to be done.
    Mr. Flood. Thank you very much. I yield back.
    Chairman Hill. The gentleman yields back. We will now start 
our second round of questioning, and I yield myself 5 minutes.
    Let me pick up where we left off there. When you think 
about the current environment, I have argued consistently since 
I have been on the Financial Services Committee, and certainly 
in my role on our Fintech Task Force several years ago, and now 
as Chair of our Digital Assets Subcommittee, that if we want to 
move from an analog financial services sector to a fully 
digital one, we have to abandon username and password, we have 
to have data ownership by individuals, not big companies, and 
we have to have a really strict view about cyber protection and 
fraud protection. And you are on the front line of basically 
all three of those components.
    Do you see your products and services easily translating 
over to a blockchain tokenized payment regime where you are 
accomplishing the same mission you are doing now in the real-
time payment arena?
    Mr. Loganathan. Very much so. Where we started in terms of 
developing our solutions was helping fintechs shore up their 
progress and compliance capability. We learned a lot from that, 
and now we are bringing that capability into traditional 
finance.
    As you now are looking at DeFi and digital wallets coming 
into play, you still need a mechanism to move money from your 
fiat side of the house into a digital wallet, hence, you still 
need that risk management capability to go through the same due 
diligence you do on the fiat side. And this is where we are 
making headway in providing that risk management between 
financial institutions and the digital wallets and providing 
that same risk management capability.
    So, it is very much translatable and exactly what we are 
doing right now. Because we are basically taking our risk 
management capability and offering a solution on the payment 
side, effectively an onramp to move funds from fiat to the 
digital wallets, and we are deploying the same risk management 
capability. And in that framework, again, the same critical 
aspects come into play, the need for multiple signals to assess 
risk, in real time. You need to bring in your device, your 
behavioral biometrics, cross-bank transaction information, 
device information to, in real time, risk assess, because money 
and those digital assets are moving in real time.
    Chairman Hill. Is it your view that in a stablecoin, 
tokenized payment environment on a blockchain, self-custody 
wallet or not, that the Anti-Money Laundering/Bank Secrecy Act 
(AML/BSA) rules of the U.S. can be adequately enforced?
    Mr. Loganathan. Absolutely, and I think----
    Chairman Hill. I raise this because this is a very key 
understanding that happens at our committee right now. And we 
have a real gap in the Senate on this right now. The 
presumption is, ipso facto, it is not possible, and therefore, 
they are zeroing in on something, but I think they are missing 
the forest because of the trees on this issue. Testimony like 
this is very helpful, I think, to the three of us.
    Mr. Loganathan. No, absolutely, and I think we have to kind 
of start in stages, and I feel like the first stage here is you 
still need to move fiat into digital wallets. In that 
transition phase this is where we can put in robust risk 
management capability to detect two things: the funds moving 
from fiat accounts, bank accounts, into a digital wallet, risk 
assess that fiat account; and then, as the funds are moving 
into a digital wallet, risk assess that digital wallet. We have 
those capabilities today----
    Chairman Hill. Yes. But also, you could extend that to say 
that someone performing a digital asset exchange function could 
do that as well.
    Mr. Loganathan. Indeed.
    Chairman Hill. And this issue that, yes, there are broad 
accounts on those exchanges that are effectively, in street 
name, to use a securities analysis view, but they could know 
that and have that implemented in that crypto exchange 
environment as well, looking at wallet verification. They are 
not telling you whose wallet it is, but they are verifying that 
they know who it is.
    Mr. Loganathan. Indeed, and I believe the same Know Your 
Customer (KYC) standards that are being applied in traditional 
finance today could be applied, and should be applied, and 
should be enforced on those exchanges. And I think we have made 
some great headway in the past year, where we are weeding out 
those who are not complying and reinforcing those exchanges 
that are complying with the standards.
    Chairman Hill. Right. It is certainly a focus of the 
committee. Senator Lummis and I sent a letter to the 
regulators, particularly on Binance, for example, but we will 
talk more about that.
    My time has expired. I yield to Mr. Nickel for 5 minutes.
    Mr. Nickel. Okay. The second round. Thanks again to our 
witnesses for being here.
    Just piggybacking on that a little bit, Mr. Loganathan, one 
of the things we have done in this committee, in a bipartisan 
way, is to move forward with a digital asset market structure 
bill, and whether you love crypto or hate crypto, you should be 
in favor of regulation. So, that is something that we are going 
to be tackling as a Congress, hopefully in the coming months.
    But I wanted to talk about a bill that is one of those 
good, rare bipartisan bills that we moved in a very positive 
way, the Equal Opportunity for All Investors Act, our bill that 
I am the Democratic lead on with Mike Flood, my Congressman 
colleague from the great State of Nebraska.
    Unfortunately, most startup capital is concentrated in 
cities like San Francisco, New York, and Boston, rather than 
cities like Raleigh, Little Rock, and Lincoln. Our bipartisan 
bill cuts through government red tape to improve choices for 
investors, regardless of their net worth. This will result in 
greater access to capital for minorities, veterans, and women, 
and spur economic growth in places like North Carolina's 
Research Triangle Park, and right here in Little Rock. It is 
certainly very good for startups.
    Under the current system, only millionaires can be 
accredited investors, and that does not include your house. So, 
when you are talking about whether you have a million bucks to 
be an accredited investor, you cannot even include your home.
    We want to open up lucrative private security investments 
to individuals with the financial knowledge to understand the 
risks they are taking, but again, are not necessarily 
millionaires. Our bill does just that by expanding the, 
``accredited investor,'' definition to allow people to invest 
in private securities and to include individuals who are 
certified, through a robust exam established by the SEC and 
administered by FINRA. If you pass a test, you should be able 
to be an accredited investor, and understand the risks.
    And I understand, while I have not seen anything on this, 
that there is talk that SEC Chair Gary Gensler wants to move 
that number up to $5 million, which would price out so many 
more people.
    My goal is that I want to move money into startups. I want 
to encourage that innovation. North Carolina's Research 
Triangle Park is home to many small biotech companies with 
critical life-changing technologies. Many of those companies 
rely on accredited investors for capital, so a larger pool of 
investors would improve their access to funding, thereby 
spurring growth and bringing good jobs to working families in 
North Carolina's 13th Congressional District and around the 
country, in places like Little Rock.
    Additionally, according to the Brookings Institution, the 
average net worth of a typical White family is nearly 10 times 
greater than that of a Black family. This bill will enable more 
diverse investors to participate in this asset class by 
allowing individuals to become accredited investors, regardless 
of their net worth. Underrepresented entrepreneurs often 
struggle to access capital and they would greatly benefit from 
a larger pool of more diverse investors, who look like them.
    Mr. Orduna, the first question is to you. Does The Venture 
Center work with accredited investors?
    Mr. Orduna. Yes. We work with accredited investors. We are 
part of the Ark Angel Alliance, which is an angel investment 
network here, and obviously, we are strongly allied and 
partnered with local investors and investment management firms 
such as Circumference Group.
    Mr. Nickel. Have you encountered any roadblocks with this 
definition for folks who want to get in on these investments?
    Mr. Orduna. You are touching on one of the most important 
topics that occupies literally my time and our time a lot, 
which is getting these promising businesses access to capital 
for growth. From what you have said, and how you have described 
this bipartisan bill: first, I am not surprised it is 
bipartisan; and second, I would personally support being able 
to open and broaden the definition of an accredited investor, 
as long as they are aware of the risk of investing into an 
early-stage venture.
    But what we have seen here, and what I think is equally 
important--I am not sure if the bill addresses this--is we work 
with a lot of small businesses that are already generating some 
degree of revenue, and they are also worthy of trying to 
identify other pools of capital.
    We are working with the Small Business Administration (SBA) 
here in Arkansas and we just launched a veteran-owned small 
business accelerator. Nine servicemen and servicewomen have now 
started businesses here in Arkansas, and they are generating 
revenue this year. And as we went through our curation process, 
Mr. Nickel, the first and foremost need that they have is still 
access to capital.
    I think that, just circling back, absolutely, we would 
support the ability to bring in more investors to look at 
early-stage venture, to look at pre-seed and seed, but we would 
strongly encourage more initiatives as well to go across the 
portfolio of innovators and entrepreneurs who may already have 
opened a storefront, here or in El Dorado or elsewhere in the 
State.
    Mr. Nickel. My time has expired, but I want to come back to 
Mr. Wheelis. I saw you nodding your head, and giving everyone 
else here a chance to weigh in on the rules for accredited 
investors. It is also worth noting that 383 Members of the 
House voted to move this bill over to the Senate, so the Senate 
has the bill, and I am hopeful this is going to be one of the 
rare standalone bills that we can move on to the President's 
desk.
    I yield back.
    Chairman Hill. Another bill sent to the Senate to rest.
    [laughter]
    Chairman Hill. The gentleman from Nebraska, Mr. Flood, is 
recognized for 5 minutes.
    Mr. Flood. Thank you, Mr. Chairman. A couple of tough 
statistics, by 2030, automation is going to take a lot of jobs 
that we know of right now in the United States. It is going to 
affect Arkansas. It is going to affect Nebraska. Another one 
from the National Venture Capital Association is that 
California, by itself, receives 59 percent of the total venture 
deal flow in the United States.
    I am pleased to hear that over $200 million is flowing here 
in the State of Arkansas, much of it through this enterprise.
    Mr. Orduna, you made some really good comments in your 
opening statement. I would add that my favorite book is called, 
``The Startup Community Way: Evolving an Entrepreneurial 
Ecosystem,'' and it talks about Boulder, Colorado. You have 
done that here, and it is ever-evolving.
    While I represent Lincoln, I live in a town of 25,000 in 
northeast Nebraska. It would maybe be more similar to Jonesboro 
or El Dorado, Arkansas. We have to have innovation there too. 
How are we, how are you, how is the State of Arkansas 
connecting with these communities that could be completely left 
out of the innovation economy, understanding that their success 
is as vital to Arkansas as Little Rock or Fort Smith or what 
you have going in northwest Arkansas?
    Mr. Orduna. Yes, I think that is an ongoing challenge. And 
I am relatively new to Arkansas, over the last 2\1/2\ years, so 
I bring a little bit of objectivity and a fresh eye. I think it 
begins with the fact that at the State level, we have some 
committed folks and agencies that are really looking to bring 
not just information but actual resources and innovation 
programs like ours and others to all corners of the State, and 
to diverse entrepreneurs and innovators in rural areas. And 
working with the Arkansas Development Commission (AEDC) here, 
for example, and then reaching out directly to municipalities, 
I think is key.
    But I think we need to be innovative about how we do this, 
and it has to be a mixture of being on the ground as well as 
taking advantage of new digital platforms, so that folks in 
Jonesboro or folks in Magnolia have as much access to the same 
level of resources as someone in Menlo Park or someone in 
Brooklyn. I have worked in both areas before coming here, and 
there is no reason that we cannot generate, not necessarily the 
same volume, but we generate the same quality of innovation and 
entrepreneurs and the same quality of businesses here as in 
Silicon Valley or Media Gulch.
    Mr. Flood. Can you also, while we are on this topic, 
describe some of the work The Venture Center does with Arkansas 
students through the Student Entrepreneur Education Collective?
    Mr. Orduna. Yes. We are really proud of that work. Some of 
the things that we have been doing are specific events and 
programs. We have something called JOLT--I do not believe that 
is an acronym; I think it actually means a burst of 
inspiration--where we work with students basically on 
hackathons and games. And we have been working directly with 
some of our fellow ESOs. I do not want to just focus on us. 
Errin Stanger, over in North Little Rock, with Innovation Hub, 
does a fantastic job working with elementary school as well as 
junior high and high school innovators and entrepreneurs. But 
obviously, Mr. Flood, we have to begin as early as possible.
    The last thing that I will say is that we held a pitch 
contest earlier this year at the Discovery Center, where we had 
10 or 11, 10- to 12-year-old students come up and pitch. And I 
will tell you, they were as polished as you could ever hear. 
So, I think our future is pretty bright, as long as we can make 
sure that their ideas get air, oxygen, and capital.
    Mr. Flood. I want to highlight one thing that you said in 
your early recommendations in your initial testimony. You said, 
``What can government do?'' And I was very pleased to hear you 
say that government should not be the catalyst for these 
innovations, but it should lead the way in quality of life.
    Mr. Orduna. Absolutely.
    Mr. Flood. And that can happen in any community, of any 
size. The investment I saw in the arts yesterday--and I am not 
somebody who would have maybe voted for the arts when I was 
speaker of our legislature 15 years ago--but I see now the 
direct connection between investment in public arts and crafts, 
and building an entrepreneurial community, and I see that on 
display here in Little Rock. I think it is outstanding that you 
highlight that as the appropriate role for the government.
    With that, I thank you, and I yield back.
    Chairman Hill. I thank the gentleman for yielding back. We 
will start our third round of questions, and we can do more, 
but I intend this to be the last one unless people want to do 
more. I am open to that. We have the time to do it.
    This is a good adult conversation, but this afternoon I get 
to go over to the Innovation Hub, to Errin Stanger's 
outstanding operation, something I am always excited about, and 
we will unveil the winners of the App Challenge. Congress 
sponsors a technology challenge every fall for all 435 
districts around the country, and we ask high school students 
to come up with their best ideas for an app. And tonight, we 
will unveil the top apps from the 2nd Congressional District 
over at the Innovation Hub.
    I think, on that comment that Mike made, and Arthur engaged 
in, this is something to put a real premium on, and the 
Kauffman Foundation has done that nationwide, and they have 
been very active here. And we have seen that effort with things 
like the Innovation Hub, in partnership with the Rockefeller 
Foundation and others, and the Kauffman Foundation in their 
accelerator programs, and at UCA and Conway and up at Startup 
Junkie in Fayetteville. These are good things. We need more of 
those. We need those in essentially all of the areas in order 
to fulfill Steve Case's goal of the Rise of the Rest.
    Arthur, you talked about investing in centers like this 
accelerator, and I would like you to sort of compare and 
contrast for us--obviously, the Federal Government spends quite 
a bit of money through the SBA and through the Small Business 
Development Centers, now Small Business Development and 
Technology Centers, I think is the acronym. Can you tell me how 
you collaborate with them here? We have one on the University 
of Arkansas at Little Rock campus.
    Mr. Orduna. Yes. We have been collaborating strongly with 
them, and I am proud to say this again, that the most recent 
collaboration, Representative Hill, is a new veteran-owned 
small business accelerator program. We have worked with the 
SBDTC, and this was really begun with folks like Jerry Talbert 
at the SBA here, working with Daniel Schutte here at The 
Venture Center, talking to their friends who are servicepeople 
and veterans. And I think that what we have been doing is 
identifying not just that particular group of folks, but also 
identifying where else could we work, and who else could we 
work with , from an acceleration and innovation, 
entrepreneurship perspective.
    The other areas that we have been talking with them about 
include, for example, rural innovation and rural innovators, 
and doing it in partnership--while it begins with that 
discussion with the Small Business Administration (SBA) and 
with the Arkansas Small Business and Technology Center 
(ASBTDC), it also brings in other partners, and that is the 
other thing I stressed, I think, in our written testimony. For 
example, looking at Socially and Economically Disadvantaged 
Individuals (SEDI) and rural communities, we have started to 
work with the University of Arkansas Medical Sciences (UAMS) to 
do an accelerator for SEDI innovators, and SEDI owners and 
innovators beginning actually in rural Arkansas. So, that is 
absolutely critical as well.
    And then, obviously, we are focused heavily on diversity, 
on businesses and business owners of color, and we really 
welcome, as well, additional corporate as well as government 
participation. What you have all said before I completely agree 
with, that government support at the municipal, State, and 
Federal level is absolutely critical, but the catalyst begins 
here, at the community level and in the individual sites.
    Chairman Hill. Thank you. I Chair the Congressional 
Entrepreneurship Caucus, and we look for ways to collaborate on 
all of the things that we have talked about today.
    Mr. Orduna. We have a lot of ideas. We would love to----
    Chairman Hill. Yes, that is right, and that is why I did 
the town hall with you last year, mostly on blockchain and the 
regulatory future for digital assets, and the U.S. Venture 
Capital Association, run by an Arkansan, a University of 
Arkansas graduate, and the Kauffman Foundation are both very 
active in that. So, we are distilling those good ideas from the 
grassroots up to the Congress.
    I will close in my final comments in this round by thanking 
Wylie Nickel for his work on accredited investors, and by 
thanking Mike Flood. All of us have been doing that. Several of 
us in this room, Mr. Hendron, Mr. Montgomery, and I, have spent 
a lot of our careers raising money for other people and doing 
Reg D private placements, and we have come across this 
accredited investor challenge for decades. And SEC Chair Gary 
Gensler, who is a fountain of occasionally below-average ideas, 
if he is promoting what you say to raise it to $5 million, that 
is the below-average idea.
    The bill I support is to make it talent-based, because what 
I found at UAMS or in the technology space is that you will 
have a young innovator who knows everything about the 
technology, but they do not have the net worth. So, I think 
making it professional qualifications or talent-based is a way 
to also do that.
    Let me yield now to Mr. Flood for 5 minutes.
    Mr. Flood. Thank you, Mr. Chairman. Ms. Marshall, you and I 
spoke briefly. You said you had 79 State-chartered banks, I 
believe?
    Ms. Marshall. Seventy-three.
    Mr. Flood. Seventy-three. Okay. One of the bills that is 
under the subcommittee chairman's purview right now, and he has 
been a big water carrier on it, is the Digital Assets Market 
Structure bill. And we think about stablecoins, and we think 
about custody of digital assets by State-chartered banks.
    One of the big questions right now, one of our struggles 
with the White House and some on the Democratic side in the 
Senate, especially--it is more bipartisan in the House--is that 
the White House or the Treasury think there should only be a 
Federal regulator overseeing the regulation of the digital 
custody of assets, stablecoins. I completely resist that. I 
think there has to be a State pathway so that we protect our 
dual-tier banking system, which is one of the benefits of 
having such a diverse banking system in the United States as 
opposed to maybe Europe or the European Union.
    Talk to us about how important it is that we preserve the 
State pathway, and is that a hill worth dying on as members of 
our committee? How important is that to you?
    Ms. Marshall. It is of utmost and absolute importance, and 
that is not self-serving in my role as a State regulator. That 
is certainly critical to the success of our ongoing industry, 
and quite frankly, the foundation of the duel banking system.
    As I said in my remarks, our firsthand knowledge of what is 
going on in our communities and with our institutions will not 
be seen or heard if there is not a State pathway in future 
regulation and guidance and legislation in and around financial 
services. It will not come from D.C.; it will come from the 
boots on the ground that the State systems and the State 
regulators and my counterparts across the country provide.
    So, it is of utmost importance, and we appreciate and 
applaud any and all efforts to ensure that any future 
legislation, whether it is around stablecoins or other digital 
innovations and digital assets, must include that State 
pathway.
    Mr. Flood. And I should add that I do support the Federal 
Government having a role, just like the FDIC might have a role, 
or obviously, the Federal Reserve has a role in any State-
chartered bank. The FDIC is in there inspecting and examining 
your State-chartered banks.
    Ms. Marshall. Yes, sir.
    Mr. Flood. You conduct your own examination. But you need 
to know, and I am sure you already know this because you have 
such a good Representative here, that there are a lot of folks 
in Washington who do not think that the State should have this 
ability to regulate, especially State-chartered financial 
institutions, as it relates to the custody of digital assets. 
And I have every reason to believe that as we go into this 
negotiation, you are going to see a push by the Executive 
Branch to make us relent on this idea of a dual pathway for 
financial institutions' custody of digital assets.
    As you work with your counterparts in other States, is this 
something that State banking directors are talking about? Is 
your Association of State Banking Directors focused on this? 
And if so, what are you hearing from your counterparts in other 
States?
    Ms. Marshall. We are absolutely focused on it. It is a core 
of the discussions, as we center around thoughts about proposed 
legislation, and as we work with our membership. As Congressman 
Hill said, many times we have a deep relationship of knowing 
each other and working with each other. My counterparts have 
the same as with your offices and Mr. Nickel's office. And we 
are all full court press, if you will, on ensuring that message 
is heard loud and clear.
    We are also working with the industry, because the 
industry, I think, is important. Certainly, I do not want to 
speak for it as a whole, but I believe the industry would tell 
you, in large part, that they are always conscious and making 
sure that the State regulators have a part. Because the ability 
to have the charter of choice, whether it is a State charter or 
a national bank charter, is significant and important, and the 
industry will continue to voice that, in my opinion.
    Mr. Flood. And I will tell you, most of the banks in 
Nebraska that were OCC-regulated have given up their national 
charters and they have opted for the State charter in the last 
10 years. It is amazing, because the OCC has not demonstrated a 
real willingness to want to regulate a bunch of rural banks and 
community banks in Nebraska.
    With that, I will say this is a very impressive community. 
You have a very impressive Member of Congress who represents 
you. I wish I could recreate this in Lincoln, Nebraska, 
tomorrow, because this is the kind of conversation that shows 
me your community is going in a direction where you are going 
to build wealth and provide opportunities to the people who 
grew up here, and I hope it all stays in Arkansas so that this 
blossoms into something that looks really, really, really, 
really healthy in 20 or 30 years.
    With that, thank you, Mr. Chairman. It was good to see you, 
Mr. Nickel. And it was a pleasure being here.
    Chairman Hill. The gentleman yields back. Do either of you 
have another question? We are good on time, right? Do you want 
to do a final round now, a wrap-up round? You just wrapped up. 
That was very impressive. But we will let you reopen.
    Mr. Nickel. Yes, I just have some cleanup.
    Chairman Hill. Why don't we say I will yield you 2 minutes, 
and we will see if there is a wrap-up. I yield to my friend 
from North Carolina.
    Mr. Nickel. Thank you. I want to first of all associate 
myself with your comments about the Senate. One of our 
colleagues famously observed it takes the Senate 6 months to 
sneeze, so we are trying to do all we can to be patient on 
their process on this accredited investor bill.
    Just as a wrap-up, I saw some agreement. I want to just 
open it up to the witnesses, if you have anything you want to 
chime in on about the challenges you are facing with the 
current accredited investor rules and definitions.
    Mr. Wheelis, I'll start with you.
    Mr. Wheelis. Yes. I think you are in a very friendly 
audience for this, because we all understand how important it 
really is and how to drive that investment level down. Because 
we know that there are a lot of people who would actively 
support innovation in its highest form if they were granted the 
opportunity. So yes, we applaud your bill very much.
    Mr. Nickel. Would anyone else like to jump in here as we 
close out?
    Mr. Loganathan. Yes. I just wanted to add that any of the 
early startup concepts are actually funded by individual angel 
investors, before any of the venture capital firms come into 
play. I fully support where you are going with this, because I 
think we need to expand that entry point for individuals to 
come in and support those initial founders who do not have the 
backing of large venture capital firms, particularly in the 
seed phase, which is going to be absolutely important.
    Mr. Nickel. That $50,000 or $100,000 that someone has could 
be the difference in some amazing new technology, and right 
now, if you do not have a million bucks, you cannot even get in 
at that level.
    Just wrapping up, Commissioner Marshall, I enjoyed talking 
with you again about our excellent Commissioner of Banks, 
Katherine Bosken, in North Carolina. You are both close. From 
your experience working with fintechs, what is the advice I 
should bring back to Commissioner Bosken?
    Ms. Marshall. For my counterparts across the country, if 
they are not already doing it, I encourage them, through your 
leadership and that of other Members of Congress, to help 
cultivate this type of engagement, and to ensure that they do 
not feel that it is maybe inappropriate to engage in those 
conversations. I believe that it is wholly appropriate and 
important for the future of it that we are in those 
conversations early on. So, the regulatory agencies, working 
with the industry, working with the entrepreneur companies, 
working with Members of Congress, if we are all collectively 
engaging in discussion, we are going to come out on a very 
strong footing going forward, and leave the financial services 
industry to the next generation, it is critical that we 
continue to do so, and I encourage them to seek opportunities 
to engage as well.
    Mr. Nickel. Thanks so much. Mr. Chairman, I yield back.
    Chairman Hill. The gentleman yields back. Mr. Flood is 
recognized for 2 minutes.
    Mr. Flood. Thank you again, Mr. Chairman. I would say that 
when I was in Nebraska, before I ended up in Congress, I was at 
a nonprofit called Invest Nebraska, which receives up to $16 
million a year in State funds. Do you have a similar public-
private kind of nonprofit corporation that provides access to 
that risk capital, does some of the vetting, and helps kind of 
hold the hands of those young entrepreneurs--well, they are not 
young--of any entrepreneur coming in?
    Mr. Orduna. Yes, there are several agencies. The one that 
probably most clearly fits is Innovate Arkansas, which is a 
recipient and also channels funds from the State as well as 
private. And that is something that is absolutely critical.
    I am very familiar with Innovate Nebraska as well, and some 
of the capital partners they have, like Burlington. They do a 
great job focusing not just on agricultural technology and 
agricultural biotechnology, but I think expanding beyond as 
well. We see the same thing in Iowa. In Iowa, there is an 
initiative with Debi Durham, the economic development director, 
and BioConnect Iowa, which is a nonprofit, and again, is very 
focused on one particular sector, which is agricultural 
technology.
    Here in Arkansas, though, I think our focus is broad, which 
I think is important. We have talked about fintech, which is 
great. We are the birthplace of fintech because of FIS, I think 
we proudly claim. But Representative Flood, I think the focus 
hopefully that I want to close on is that we are agnostic and 
supportive of all of the different technology sectors, 
industries, and areas where innovation and entrepreneurship is 
being explored and being cultivated.
    Mr. Flood. Thank you, and I yield back.
    Chairman Hill. Thank you, Mr. Flood. Let me thank our 
witnesses for being here today. And I want to thank everybody 
in Little Rock and The Venture Center for hosting today. This 
is exactly what this building is for. And we have had such a 
success over the first decade here at The Venture Center, we 
are really looking forward to the expansion that is going to be 
announced shortly, that is going to continue to see The Venture 
Center expands its mission.
    And this is something I certainly dreamed about when I was 
the Chair of the Chamber of Commerce here, that we would have a 
more risky outlook for development here in Little Rock. We are 
great at logistics. We are great at wholesale. We are great at 
transportation. We are great at health care. We are great at 
government. We are great at service businesses here. There is 
no doubtthat we are a capital city, and that is what it feels 
like. So, we do not boom and we do not bust, and we used to 
brag about that for 40 years economically here.
    But my pitch as Chair was that we need to increase our risk 
profile. We need to have a wider beta on the companies that 
operate here, because that produces wealth and gain and career 
opportunities for people over the long haul, and at a much 
faster rate. And I think this has been an exciting first decade 
for The Venture Center.
    And Mr. Wheelis, we are so grateful to you for your 
partnership at FIS, and we hope that the innovation that you 
have seen here has helped to expand the portfolio of product 
offerings for your global audience at FIS.
    With that, if there are no other questions from our 
Members, this hearing is adjourned.
    And let me just say, in closing, having adjourned the 
hearing, we are going to have an opportunity to hear from 
BankLabs, BOND.AI, and Securitech, and have a bit of a 
demonstration day down the hall for our Members so they get to 
hear and ask questions of portfolio companies that have done so 
well here at The Venture Center.
    I thank everybody for coming out today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    [Whereupon, at 10:23 a.m., the hearing was adjourned.] 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


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