Business & Finance

Figure CEO Mike Cagney talks Fintech with Georgetown Law’s Chris Brummer


With crypto in the crosshairs of policymakers, but Congress unable week to move the ball decisively forward for crypto regulation, we thought it would be worthwhile to visit a podcast that is proving to stand the test of time between Georgetown law professor Chris Brummer and Mike Cagney, the CEO and founder of Figure Technologies, a financial startup seeking to revolutionize financial services through the use of blockchain technologies. The two talked about real-world applications of distributed ledgers, with Cagney sharing insights about his company and how he’s managed to harness the power of blockchain practically. 

For Brummer, “simplicity isn’t always so simple with crypto. And sometimes the most obvious and concrete use cases are the ones that are most overlooked,” Brummer observed on the Fintech Beat podcast.

Housing provides one such example. With interest rates high, and housing turnover low, government and industry experts are seeking ways to lower the cost of borrowing loans.  One area of interest is technology—and specifically blockchain technology.

Figure CEO Tells Chris Brummer: Blockchain Reduced Risk for Customers

Figure was co-founded by Mike Cagney, after he completed a stint as the chief executive officer of Social Finance Inc., or SoFi.  Cagney launched Figure in 2018 because he believed that blockchain had the power to transform financial services. As a marketplace to connect borrowers and lenders, blockchain may prove immensely useful. “The blockchain allows for two parties to face off directly and transact with one another without incurring counterparty risk,” said Cagney.

Though the company recently laid off its workers, it has reportedly been hitting financial milestones, according to Yahoo News. Figure’s lending business reached $83.5 million in revenue during the first half of the year, and generated $2.7 million in adjusted profit during the second quarter, Cagney has written. 

For entrepreneurs still brainstorming how to practically utilize blockchain for their products, Brummer recommends that they hone in on the concrete nature of a marketplace (Figure perhaps being one) and apply the technical features of blockchain, and analyze how these features can be used to solve gaps. 

The process, however, may not be as easy as it sounds because there are three fundamental challenges to blockchain application. First, the structure of the technology. Second, issues with early adoption. And third, regulatory barriers. 

Blockchain relies on a number of consensus mechanisms, most frequently one where transaction reporting is validated by hundreds of validators. While this adds to blockchain’s security, it also creates problems with data privacy. You don’t want your customer’s data to be accessible by hundreds of people, so entrepreneurs need to think of ways in which this can be prevented. 

In the case of Figure, Cagney came up with a blockchain called Provenance for Figure. He told Brummer, “Provenance is public, it’s open source, it’s decentralized, so Figure doesn’t control it. We don’t own it, but we built it as a means to an end in terms of adoption.” Provenance utilizes a unique hash of data that’s validated, rather than sharing all of its customer’s data. The hash corresponds to the data set but without sharing confidential information. 

Despite the promise of accessibility and security, skepticism still follows blockchain, which creates issues for adoption. Cagney was faced with the same issue because whenever he pitched his products to banks, they loved the idea but none of them wanted to be the first bank to join. Cagney resolved this problem by being self-sufficient and launching a series of businesses within his company. 

Brummer’s Advice to Entrepreneurs Seeking To Harness Blockchain’s Power

To succeed as an early adopter, companies often must scale so the business possesses enough gravitational pull as a market actor to be reckoned as a force of change. “That first-mover advantage usually depends on one of two things,” Brummer opined. “Either A, you’re able to get enough scale so that you create enough gravitational pool as a market actor, or B, you’re able to enjoy some kind of regulatory moat.”  Neither, however, is easy.

Equally tricky is the third fundamental issue: regulatory barriers.

“Figure has over 200 licenses. So we have money transmitter licenses, we have lending licenses, servicing licenses, brokerage licenses. I think Figure’s probably the most regulated entity in the country at this point. And so the idea that blockchain circumvents regulation is just absolutely not true,” Cagney told Brummer. 

Figure regularly interacts with regulators from the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the Federal Reserve. “It’s important to engage with the regulators because this is new territory,” Cagney explained. “It’s effectively greenfield and there’s not a lot of legislation around. So the regulators are very tentative to create the law and they want to effectively enact the law.” 

Both Brummer and Cagney believe that entrepreneurs seeking real-world applications of blockchain should develop a sound understanding of the industry they’re trying to disrupt. One of the reasons why companies keep running into regulatory issues is that they lack a clear understanding of the industry they’re trying to enter. 

For Cagney, many of the regulatory issues of blockchain still surround privacy and how data is handled. If unauthorized parties had access to confidential data, such as bank ledgers, they could potentially trigger a bank run — which is precisely the sort of stuff that haunts a regulator. The only way to resolve these regulatory issues is to develop an understanding of the market you’re trying to enter. 

“If you really want to disintermediate something, you have to know just what you’re disintermediating and the larger system around it,” said Brummer

At the end of the podcast, Chris Brummer reasserted the need to develop an understanding of the system developers are seeking to change. “You have to sweat the details, even when you’re trying to disintermediate them. If you don’t, you’re not only playing with fire, but even worse — you probably won’t be able to even light the match in the first place,” Brummer cautioned.