The concept of a public/private standards-setting organization to spark partnerships between community banks and fintechs “merits further consideration,” said FDIC Vice Chair Travis Hill.
The FDIC released a request for information on the development of a standards-setting organization three years ago, but that plan didn’t move forward. The group would work with the private sector and federal banking agencies to establish requirements for due diligence and emerging technologies, Hill said June 1 during the Independent Community Bankers of America’s ThinkTECH Accelerator Program. Banks would still need to manage third-party risks, including consumer protection.
“This would enable banks to onboard fintechs and technologies that had received a ‘seal of approval,’ reducing the need for each bank to conduct costly, time-consuming due diligence of its own,” he added.
Hill said third-party contracts are often necessary for banks as they lack the budgetary resources to develop technology and face strong competition to hire and retain IT personnel. Hill said FDIC’s innovation lab, FDICTECH was initially established to work directly with banks and fintechs but has since shifted its focus to internal IT. “The FDIC’s move away from this model was unfortunate, and this type of active partnership can be helpful in promoting innovation,” Hill said.
In early May, the Biden administration proposed establishing standard-setting bodies for ‘critical and emerging technology’ which would prioritize digital identity and distributed ledger technology.
Despite the lack of a standards-setting organization, the growth outlook for bank-fintech partnerships remains strong. Fifty-five percent of banks said fintech partnerships will play “very important” roles in their strategies by 2025, compared with 32 percent of banks in 2022, according to EY-Parthenon’s 2022 U.S. Banking Strategic Partnership Survey. Another 36 percent said working with fintech firms would be important within three years. Roughly 40 percent of such partnerships fail to operationalize due to subpar strategies, scalability challenges and poor organizational alignment, according to EY-Parthenon.