<\/p>\n
Prudent regulation is needed in helping to define the risks and rewards in emerging partnerships between financial institutions and banks \u2014 but current regulatory efforts may be too vague, critics charged at a Congressional hearing held Friday (July 12).<\/p>\n
A \u201cfield hearing\u201d<\/a> held by the House Financial Services Subcommittee on Financial Institutions and Monetary Policy \u2014 \u201cfield\u201d hearings take place outside of Washington, D.C., and in this case was held in Kentucky \u2014 included testimony from banking and FinTech executives who noted that the partnerships have the potential to transform financial services and boost financial inclusion.<\/p>\n The hearing was titled \u201c\u201cFinancial Institution-Fintech Partnerships: Leveraging Third-Party Relationships to Increase Access to Financial Services.\u201d<\/p>\n Offering up examples of the ways in which technology can help foster that inclusion, Kirk Chartier<\/a>, chief strategy officer at online lender Enova<\/a>, said in his remarks<\/a> that machine learning and analytics have enabled the company to facilitate $55 billion in loans to consumers and businesses \u2014 with significant activity serving customers with credit scores of about 600 and average personal income of $40,000 annually \u2014 as it also acts as a service provider to community banks.<\/p>\n But according to his testimony, \u201cthe ability to continue this pace of product innovation and improvements for our customers is hampered today. There is an increasing patchwork of state laws and regulations that are not keeping up with changes in technology, data and analytics that allow Enova to tailor credit products to individuals with lower credit scores and growing small businesses with limited assets to use as security for loans.\u201d<\/p>\n The executive said that Enova\u2019s tech platforms and data\/analytics have been \u201cindependently verified through regular and recurring audits and assessments \u2026 Banks seek us out for these services to expand their lending to new populations they couldn\u2019t otherwise lend to.\u201d<\/p>\n But, he said, the \u201cadvantages for consumers and small businesses from competitively priced bank-offered loans is at risk in several states as out-of-state activists work with novel legal theories to interfere with a bank\u2019s right to offer its products and services. This interference also creates uncertainty about the risks Enova takes on in offering services to banks, as well as making it uncertain for banks, causing many of them to avoid offering loans to riskier customers.\u201d<\/p>\n And, he said, there have been examples of regulatory \u201coverreach\u201d by agencies, such as the Consumer Financial Protection Bureau<\/a> (CFPB). Enova, he told the Committee, has urged Congress to enact the CFPB Transparency and Accountability Reform Act \u201cto provide certainty to the agency and the industry that will allow them to work more effectively to deliver innovation and high-quality financial services to consumers and small businesses.\u201d<\/p>\n In remarks<\/a> delivered by Chairman Andy Barr<\/a>, Ky.-R, the Representative noted that the joint efforts between financial institutions (FIs) and FinTechs \u201ccan allow more efficient provision of financial services to consumers and businesses of all sizes.\u201d<\/p>\n But, he added, \u201crisk management and due diligence are important,\u201d and stressed a balance between innovation and safety. He cited arguments that the joint recommendations from the Office of the Comptroller of the Currency<\/a> (OCC), Federal Deposit Insurance Corporation<\/a> (FDIC) and Federal Reserve<\/a> may be in fact creating ambiguity for banks on assessing risk and overseeing their relationships with third parties \u2013 and which activities should be permitted (or not).<\/p>\n \u201cThe guidance was too vague to provide an executable roadmap discerning what activities regulators would find acceptable or not,\u201d contended Barr, which may ultimately stifle innovation.<\/p>\n Later in the hearing, Steve Trager<\/a>, executive chair of Republic Bank & Trust Company<\/a>, said in his testimony<\/a> that the bank offers small-dollar consumer credit products marketed and serviced by FinTech program managers, including installment and line of credit loans, as well as medical debt financing products.<\/p>\n Within the Banking-as-a-Service construct, he said, \u201ceach party benefits from the strengths of the other party. This is a very collaborative process and has created a great deal of innovation in the marketplace urging competitors to offer better and less expensive consumer services,\u201d and allows Republic to offer programs on a national basis while it competes with larger FIs.<\/p>\n \u201cConsumers can be assured the products offered through joint bank\/FinTech programs comply with consumer protection laws including credit reporting, debt collection, privacy, and electronic funds transfers,\u201d he said.\u00a0 The FinTechs, he added, benefit from the banks\u2019 backend infrastructure and oversight experience.<\/p>\n Asked by Barr how the third-party relationships help improve the operations of smaller banks, Trager said that Republic\u2019s 47 branches serve roughly 120,000 customers that are not typically served by larger firms, but without the FinTech joint efforts, Republic would not have the reach into a client base of 3 million customers that it currently has.<\/p>\n Mike de Vere<\/a>, CEO of AI-underpinned lender Zest AI<\/a>, said in his testimony<\/a> to lawmakers that \u201cthe way to increase access to equitable lending is together. While regulators can ask more of lenders and vendors when it comes to promoting transparency, fairness and compliance, we would like to ask a few things of our regulators and decision makers. We ask that you invest in ideas and visions that are built with the purpose of bringing about a collective good. We ask that our leaders promote rules that both protect people and encourage innovation. We ask that compliance and fairness become more than a box to check and that governance uplifts those pursuing fairness as an outcome, not just as a by-product.\u201d<\/p>\n Karen Harbin<\/a>, president and CEO of Commonwealth Credit Union<\/a>, detailed<\/a> that in partnering with Zest AI, as much as 83% of all consumer loan decisions have been automated, allowing the firm to compere with other lenders, having approved more than $372 million in consumer loans in the past three years, and where loan delinquency is lower than the industry metrics.<\/p>\n \u201cA stringent [regulatory] stance on AI usage in the financial sector could disproportionately harm credit unions and smaller institutions while benefiting the largest incumbents,\u201d she told the committee.<\/p>\n Amy Roberti<\/a>, head of global policy at Stripe<\/a>, said<\/a> that her firm\u2019s partnerships with banks \u201cenable us to jointly extend the reach of financial services to underserved businesses.\u201d<\/p>\n Those partnerships and data, she said, enable better underwriting of business loans. With\u00a0 the loans in hand via Stripe Capital, businesses processing less than $100,000 per year saw revenue growth of 140 percentage points over their peers. Only 5.5% of Stripe Capital users had previously obtained a loan from a traditional lender.<\/p>\n The Stripe\/bank partnerships also facilitate Stripe\u2019s processing of $1 trillion in payment volume, equivalent to 1% of global GDP.<\/p>\n \u201cWe recognize the challenges in distinguishing where the bank\u2019s role ends and a partner\u2019s begins,\u201d she told lawmakers. \u201cWe believe these concerns can be effectively addressed through thoughtful regulation and industry cooperation. Industry can collaborate more with regulators to increase consistency in supervisory expectations. We can help develop best practices and standards that aid examiners, banks and partners.\u201d<\/p>\n The post House Financial Services Hearing Warns of Regulatory \u2018Ambiguity\u2019 Governing FinTech-FI Partnerships<\/a> appeared first on PYMNTS.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Prudent regulation is needed in helping to define the risks and rewards in emerging partnerships between financial institutions and banks \u2014 but current regulatory efforts may be too vague, critics charged at a Congressional hearing held Friday (July 12). A \u201cfield hearing\u201d held by the House Financial Services Subcommittee on Financial Institutions and Monetary Policy […]<\/p>\n","protected":false},"author":2,"featured_media":343249,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[245,239,243,242,244,202,184,241,240,189],"class_list":["post-343245","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-nft","tag-azuki","tag-board-ape","tag-erc115","tag-erc721","tag-metamask","tag-nft","tag-nft-technology","tag-opensea","tag-sbt","tag-soul-bound-token"],"_links":{"self":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/343245","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/comments?post=343245"}],"version-history":[{"count":3,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/343245\/revisions"}],"predecessor-version":[{"id":343251,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/343245\/revisions\/343251"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media\/343249"}],"wp:attachment":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media?parent=343245"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/categories?post=343245"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/tags?post=343245"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Barr\u2019s Remarks <\/strong><\/h2>\n
Mutually Beneficial Relationships <\/strong><\/h2>\n