House Republicans are warning against what they argue is regulatory overreach in bank-FinTech partnerships.
The lawmakers — all members of the House Financial Services Committee – issued a letter Thursday (Oct. 31) to regulators at the Federal Reserve Board, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corp. (FDIC) responding to their recent request for information on partnerships between banks and FinTechs.
The letter argued that regulators need to recognize the “unique nature” of these collaborations to avoid hindering innovation while ensuring proper regulation and protecting consumers.
“Given fintech’s evolving nature and promising potential to enhance our financial system, it is essential that these newer products and services are not treated with undue regulatory scrutiny, which will only lead to stifling innovation,” the letter said.
Bank-FinTech partnerships, the lawmakers add, offer potential benefits, among them low-cost and more accessible financial products and services for consumers and increased deposit base for community banks.
The letter follows an announcement by the three regulators in July that they were considering “additional steps” to make sure banks effectively manage risks associated with their partnerships with FinTech companies.
While the agencies support responsible innovation, they issued a statement expressing concerns about how these collaborations are managed.
“The statement details the potential risks and provides examples of effective risk management practices for these arrangements,” the agencies said in the release. “In addition, the statement reminds banks of relevant existing legal requirements, guidance and related resources, and provides insights that the agencies have gained through their supervision.
“The statement does not establish new supervisory expectations,” they added.
The debate comes at a time when digital transformation has challenged and changed some long-held assumptions about the character and behavior of customer and commercial deposits held by financial institutions, as PYMNTS wrote in August.
“The regulators are now awake,” Thredd CEO Jim McCarthy told PYMNTS in June. “Too many people are focused on the ‘as a service’ part — but have ‘minored’ in the banking part, if at all.”
As PYMNTS has written, bank and FinTech partnerships are becoming more and more critical — especially when applied to improving customer experiences, extending market reach and enhancing efficiency in financial services.
Research by PYMNTS Intelligence shows that 65% of banks and credit unions have launched at least one FinTech partnership in the past three years, with 76% of banks seeing FinTech partnerships as necessary to meeting the expectations of their customers. And a whopping 95% of banks say they use these partnerships to enhance their own digital product offerings.