Blending bank and fintech competencies key to regulatory input and partnership success

Phil Goldfeder, CEO of the American Fintech Council (AFC), brought a diplomatic, better-together message to bank owners at the Bank Holding Company Association’s Fall Seminar this month..Reflecting on a decade’s-worth of bank-fintech partnerships, Goldfeder depicted a maturing scenario in which successful collaboration emerges from mutual appreciation for core competencies. Banks, he said, have been entrusted “with the responsibility to protect the integrity of the financial system for 200 years. That hasn’t changed, and fintech companies should not be able to come in and displace the trust and responsibility you have built.” Fintechs, on the other hand, are continuously developing effective mechanisms for reaching consumers.“There’s a piece to be played by each,” Goldfeder said. Drawing lessons from the initial wave of partnerships in 2016-2018, Goldfeder said that while many banks feared being left behind, some were too hasty in onboarding tech partners, and they eventually outsourced too much to the fintechs. Some of those fintechs collapsed, like middleware platform Synapse, and some might also have been dishonorable, Goldfeder said.“In about 18 months you went from zero partnerships to 20 or 30. You thought you could trust technology companies to help with things like compliance or reconciliation – things that are the job of the financial institution,” Goldfeder said. “Where we ran into trouble was when people forgot or ignored what their core competency was.”With a current wave of fintechs seeking special-purpose banking charters, Goldfeder said a comparable lesson is likely to be learned in reverse. Fintech entrants have little understanding of what it means to be a banker, “what it means to think about AML/SDN and KYC and risk and compliance and the rigors that go along with the examination process and capital requirements.” As a result, Goldfeder predicted that, if granted, “most of these charters will not last five years.”A better approach is for banks and fintechs to work together and learn from each other. In addition to making business partnerships more effective, that interplay stands the best chance of influencing policymaking and regulation, a core function of AFC, Goldfeder said. AFC has worked to expand community bank representation over the last three years. Community banks now comprise about a third of the organization’s membership, Goldfeder said. Most of those banks are below $10 billion in assets and some are much smaller than that. They join to learn and to be in the room for discussions with the FDIC, OCC and the Fed.Reflecting on his own days in the New York State Assembly, Goldfeder said the combined perspective of banks and fintechs is key to avoiding reactionary legislation. The goal, he said, is a “level playing field for everyone involved. This supports responsible innovation and sound public policy leading into a regulatory structure to ensure [everyone is] doing it the right way.”