US Regulators Are Finally Taking Fintech Startups Seriousl
Hi all, Julie here. Sitting on a porch in Greenwich, Connecticut eating lots and lots of carbs for a friend’s birthday. Has me thinking about how so many of my friends have moved out of the city and I myself will be early next year too. Most of us would have done so in the next 5 years since we’re in our late 20s/early 30s, but it’s crazy how the last few months have dramatically changed our lives and plans for the future.
In the same vein, it’s something regulators have noticed with fintech as well. Consumers are becoming more tech savvy while community banks in particular aren’t, and this is a recipe for “banking deserts,” as FDIC Chairwoman Jelena McWilliams said at LendIt last week.
It shouldn’t be surprising to any of us that McWilliams is more pro tech than others in DC have been. She started out as a securities lawyer in Silicon Valley and was appointed to her current position at the FDIC in 2018. I found her fireside chat at LendIt particularly encouraging for fintechs though, and even more importantly, for underserved consumers as well.
“Small banks throughout the US are going to be shrinking and consolidating, and we’re going to have banking deserts if that trend continues. So it is in the interest of the FDIC that we promote technology and technological solutions and create a pathway for banks to team up with fintechs where in the past, frankly fintech was almost a dirty work in a regulatory sphere.”
Earlier in the conversation, the Chairwoman said she’s met with more than 2,000 tech firms and has three questions she asks them.
- How you came up with your tech solution and why?
- How do you choose a partner bank?
- If you’re partnering with a community bank, how does that usually go since they have limited resources?
During the course of the conversations she realized DC has to be more proactive when it comes to “moving the ball forward.” For instance, there are hundreds of questions that need to be asked by each bank to form a partnership, and while some of those questions will be different, there a loads of them that are the same. Yet, the two sides have no way of auto populating the forms with answers they’ve already filled out for other banks, adding a huge administrative burden for those involved.
Other key issues for community banks is the age of their tech, the lack of funding and ability to update it on their own, and how that is impacting their customer profile. McWilliams mentions a conversation she had with a banker recently who said the average age of their depositor is 70. And that they aren’t getting younger customers because those users are opting for these new online banks.
“Relying on legacy systems and relying on technology that they have been implementing for such a long time when their customers are three generations ahead in terms of the use of technology is going to result in those banks losing customers.”
This begs the question of whether community banks can survive without any changes. If they can’t, that’s not a good thing for consumers since oftentimes, the underserved were better served by these institutions rather than the large incumbent that quite honestly couldn’t care less about them.
“When you think about the survivability of community banks, they are not going to survive. Even if they have good capital management, liquidity etc etc, they can have the best management team on the face of the planet, if they do not modernize their technology.”
Now, this is still DC we’re talking about, so I wouldn’t expect things to change much in the next few months (I don’t think they’ve filled the Chief Innovation Officer role yet after announcing it last year). But in the course of my time covering fintech, I don’t know that I remember a time where regulators were ever this on board with getting fintechs more involved. As John Collins of FS Vector pointed out a couple of weeks ago, the value proposition of technology in finance is getting much clearer in DC and elsewhere.
My hope is that we as an industry use this newfound help and power for good, to truly help people, rather than simply taking advantage of others or seeking large profits for ourselves.