Regulators can be the glue in bank-fintech partnerships: FDIC chief
ST. LOUIS — Regulators should create a climate for banks and fintech service providers to team up in meeting customers' digital banking demands, Federal Deposit Insurance Corp. Chairman Jelena McWilliams said Tuesday.
“It is our job as a regulatory agency to understand technology by engaging with innovators in banks and at fintechs and to provide sound guidance and technical assistance to banks that choose to deploy new technology,” McWilliams said at a conference on the future of community banking at the Federal Reserve Bank of St. Louis.
“My goal is not to replace the business judgment of banks, but to identify and eliminate unnecessary regulatory burdens that discourage innovation.”
McWilliams shared details on the FDIC Tech Lab, or FDiTech, a recent initiative aimed at encouraging innovation among banks as well as within the regulatory agency itself. The agency is currently seeking a chief innovation officer and in the coming months the FDIC will hold a series of roundtables with community banks to discuss next best steps for encouraging innovation, she said.
She said the FDIC is also considering the use of “tech sprints” — a team- and deadline-based development strategy popular in Silicon Valley — to speed up the development of the agency’s own technology tools.
"These tools may also help institutions that voluntarily adopt them to become more efficient in their operations," McWilliams said.
"These efforts will encourage non-traditional partners to engage in the development of cutting-edge technology for the financial services industry, and will help avoid the limitations of monolithic, government-imposed technological mandates that are too expensive and out-of-date by the time they are developed."
McWilliams noted that her goal is for the FDIC to lay "the foundation for the next chapter of banking by encouraging innovation that meets consumer demand, promotes community banking, reduces compliance burdens, and modernizes our supervision."
She raised the specter of Blockbuster — and how the onetime video rental behemoth declined buying a then-nascent Netflix — as a cautionary tale for the community bankers in the room. In 2000, Netflix was worth about $50 million, but today is worth about $142 billion.
“At the risk of oversimplifying, Blockbuster was not quick enough to adopt — perhaps even understand — emerging trends,” McWilliams said.
Of particular interest to McWilliams Tuesday was consumer data and “open banking.” As more consumers become comfortable accessing and sharing their financial data with third-party companies, banks must recognize that consumers “clearly benefit from the innovation and competition that ‘open banking’ fosters,” she said.
McWilliams also spoke at length about the potential value of alternative credit modeling.
“If used appropriately, alternative data has the potential to help demonstrate the creditworthiness of some consumers who currently may be unable to access credit from banks, or to enable consumers to obtain more favorable products and pricing based on more accurate assessments of repayment capacity,” she said.
Bankers attending the event reacted positively to McWilliams' support for their efforts to partner with fintech firms.
"I think there could be a helpful role for regulators to play" with bank-fintech collaboration, said Tom Sellers, president and CEO of Alliance Bank in Sulphur Springs, Texas.
"There's a fine line between assisting the banks and managing their decisions," Sellers added. "You have to make sure that line isn't crossed."
McWilliams "is spot on that we all need to work together," agreed David Kapavik, president and CEO of SouthStar Bank in Moulton, Texas, and a former FDIC examiner. "If it doesn't happen now, it's never going to happen."