July 31 -- The Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation request information and comment by September 30, 2024 on Bank-Fintech Arrangements Involving Banking Products and Services Distributed to Consumers and Businesses.
Over the past several years, the Office of the Comptroller of the Currency (OCC), Treasury; the Board of Governors of the Federal Reserve System (Board); and the Federal Deposit Insurance Corporation (FDIC) (collectively, “the agencies” or “agency” when referencing the singular) have observed and reviewed arrangements between banks and fintech companies that provide consumers and businesses (herein referred to as “end users”), access to banking products and services. Although these arrangements may provide benefits, supervisory experience has highlighted a range of risks with these bank-fintech arrangements. The agencies support responsible innovation and support banks in pursuing bank-fintech arrangements in a manner consistent with safe and sound practices and applicable laws and regulations, including but not limited to, consumer protection requirements (such as fair lending laws and prohibitions against unfair, deceptive, or abusive acts or practices) and those addressing financial crimes (such as fraud and money laundering). This request solicits input on the nature of bank-fintech arrangements, including their benefits and risks, effective risk management practices regarding bank-fintech arrangements, and the implications of such arrangements, including whether enhancements to existing supervisory guidance may be helpful in addressing risks associated with these arrangements.
For many years, non-banks have provided access to financial products and services, such as consumer credit products, commercial loans, payment products, and deposit accounts. Rapid technological advances and evolving customer preferences are accelerating these trends. Over the past decade, fintech companies have significantly expanded their ability to distribute financial products and services directly to end users. These companies include small- and medium-sized firms specifically focused on the financial services sector as well as larger firms with established, multi-use technology platforms (sometimes referred to as “Big Tech”). For purposes of this Request for Information (RFI), we refer to all of these types of non-bank firms as “fintech companies.”
To facilitate providing end users with access to banking products and services, fintech companies may enter into arrangements with banks. In these arrangements, a bank typically makes products or services available through an arrangement with one or more fintech companies in which the fintech company, rather than the bank, markets, distributes, or otherwise provides access to or facilitates the provision of the product or service directly to the end user. These arrangements enable fintech companies to provide end users with access to a range of banking products, including deposit products (e.g., checking or savings accounts); payment services (e.g., peer-to-peer, debit card, contactless payments, Automated Clearing House (ACH) transactions, or wire transfer capabilities); or lending products (e.g., unsecured consumer or small business loans) through online and mobile applications, platforms, or digital wallets. In some of these cases, fintech companies (sometimes referred to as a “middleware provider” or “intermediate platform provider”) act as intermediaries by engaging in a variety of functions, as described in detail below. For purposes of this RFI, we refer to all of these types of arrangements as “bank-fintech arrangements.”
Bank-fintech arrangements may enable banks to leverage newer technology and offer innovative products or services to further their digitalization efforts and to meet evolving customer demands and expectations. These arrangements may also provide banks with the ability to quickly and more cost effectively deploy products or services into the market through the fintech company. In addition, these arrangements may provide banks with access to new or expanded markets, revenue sources, and customers. As discussed in more detail below, bank-fintech arrangements also may introduce potential risks through business and legal structures that increase operational complexity, unbundle traditional banking products and services (particularly payments), and increase compliance challenges. The failure of banks to manage these arrangements effectively may present consumer protection, safety and soundness, and compliance concerns.
The following sections of this RFI describe several bank-fintech arrangement structures and use cases, as well as the risks the agencies have seen manifesting and arising from these arrangements. The agencies seek public comment to build on their understanding of these arrangements, including with respect to roles, risks, costs, and revenue allocation. The agencies also seek additional information and stakeholder perspectives relevant to the implications of such arrangements, including for banks' risk management, safety and soundness, and compliance with applicable laws and regulations. The RFI is not intended to impose any obligations or define any rights, and it is not an interpretation of any statute or regulation. . . .
In this RFI, the agencies are inviting interested members of the public to comment on the descriptions of bank-fintech arrangements and risks summarized in the document. The agencies are also seeking comment on effective practices for managing these risks. Where questions ask for the “range of practices,” respondents are encouraged to describe the practices' advantages and disadvantages.
-- Bank-Fintech Arrangement Descriptions (7 questions)
-- Risk and Risk Management (16 questions)
-- Trends and Financial Stability (4 questions)
RFI:
https://www.federalregister.gov/d/2024-16838