ICBA Policy Resolution: Fintech and Innovation

Position

  • ICBA supports and encourages community banks as they innovate, both organically and through partnerships with other innovators.
  • ICBA supports a legal and regulatory framework, coupled with a supervisory process and operational environment, that fosters this innovation.
  • ICBA urges regulators and other policymakers to ensure that non-banks that offer financial services directly to customers adhere to the same regulatory requirements and are subject to the same oversight as banks.
  • ICBA supports the use of data analytics to help community banks identify and eradicate fraud and enhance the customer relationship by obtaining insight into customers’ financial practices.
  • ICBA strongly advocates for the development of financial services, channels, and standards that are centered around secure, insured financial institutions while protecting customer funds, information, and privacy preferences.
  • ICBA supports initiatives to improve and enhance banking and payments technological and standards infrastructure that are open to all financial institutions, regardless of size.
  • ICBA strives to foster awareness of emerging technologies among community banks through education and member communications.
  • Community banks rely on core processing technology to maintain a competitive advantage in today’s ever-changing environment. ICBA is working to ensure core processing technology enables community banks to:
    • meet and exceed customer expectations for banking products and services;
    • comply with legal and regulatory requirements;
    • manage expanded operational risk;
    • enhance customer information security; and
    • achieve ongoing efficiency and profitability.
  • ICBA supports streamlining the initial due-diligence requirements banks must conduct on third-party vendors.

Background

Technological innovation and deployment, particularly web and mobile, continues to alter the way that consumers and businesses conduct banking and commerce and influences the products that community banks offer. Additionally, technology deployment is altering the risk profile of community banks and subjecting them to a myriad of regulatory requirements and expanded oversight.

The banking agencies play a valuable role in defining and identifying the risks of existing and emerging technologies for both community banks and their service providers. Any guidance should be crafted in a manner that does not hamper innovation or impose undue burden.

Fintech

Financial technology (known as fintech) companies offer new channels to financial products and services for consumers and small business. Fintech companies can serve as valued partners to community banks, but can also disrupt community banks when they provide financial services directly to customers. Federal and state regulatory frameworks for the licensing and regulation of fintech products and services should include consumer and data-security protections consistent with those that apply to the banking industry.

Data Analytics

Community banks desire to use data analytics to deepen their understanding of their customers and help them make better decisions regarding their financial needs. However, this capability is typically not supported by the core processors serving the community bank marketplace.

Core Processing Technology

Core processing technology, the foundational infrastructure for customer transactions, balances, and histories, is now under greater industry scrutiny and market pressure due to advances in online and mobile channels as well as the entry of non-traditional firms. The established and interconnected nature of core processing technology further compounds community banks’ reliance on this capability to stay competitive, efficient, and profitable.

Open Technology and Standards

In order to innovate in a nimble manner, community banks need the ability to efficiently and seamlessly integrate the core platform with other product offerings and ancillary services. Timely and seamless integration enables community banks to collaborate with their customers in tailoring products and services. To achieve this service providers should support third-party integrations, open-source applications, application programming interfaces (APIs), and software development kits (SDKs) for community banks.

Blockchain and Distributed Ledger Technology

Virtual currencies’ use of blockchain and distributed ledger technology is spurring significant investments in payments technology. These technologies can be used for executable contracts and international payments, but can also be re-purposed as public records of transactions and be used for non-payment-related purposes, such as voting and as an exchange value database.

Staff Contacts: Cary Whaley and Jeremy Dalpiaz