Don’t let regulatory caution stifle innovation

Editor’s note: This column was included in the April 18 version of The Pulse, a weekly BankBeat email newsletter sent to subscribers.

There was an interesting story in the American Banker late last week chronicling the surge in enforcement actions which concern bank-fintech partnerships.

Just over a third of publicly disclosed enforcement actions from the Fed, FDIC and OCC involved fintech partnering banks during the first quarter of the year, according to data from consulting firm Klaros Group cited in the article. That’s up notably from 10 percent a year prior. Some of that rises from new guidance around banking-as-a-service joint ventures issued last summer. 

The article asks an important question: Is this jump merely growing pains as regulators get their arms around new developments? Or is it a flashing caution sign that signals the brakes are about to be slammed?

After the pandemic pushed us toward digital, a little bit of a wild west result is not surprising. Banks rushed to meet increased demand, and consumer expectations went from trendy perks to table stakes in a very short window. Even if they’re not directly tied to consumer products and services, fintech partnerships have opened up a world of new possibilities for how banking will function going forward. It’s not shocking it’s taken regulators a while to catch up, nor that they might be especially jittery in the wake of last spring’s major bank failures.

No one is asking banks to move fast and break things; no one wants banks to be careless with customers’ money. Regulators are unsurprisingly even more risk-averse than the average consumer worried about their deposits and loans. And, when it comes to figuring out how to proceed, it’s unfortunate that bankers wanting to explore the space often feel like they have to glean information from consent orders rather than positive regulatory guidance.

I just hope that their natural caution doesn’t put too much of a damper on where innovation can take us. 

Speaking of the future of banking, I’d like to remind our readers that we’re still accepting nominations for our Rising Stars in Banking honors program. We’re looking for the next generation of talent, those who are set to impact the industry in the decades ahead. If you know of someone like that, drop us a line via our website or email. You’ve got until May 5.