"Partnerships with fintechs are particularly important for community banks, which often cite cost and regulatory uncertainty as roadblocks to innovation. Leveraging new technology may provide additional opportunities for these institutions and their customers," said FDIC Chairman Jelena McWilliams, in a statement. "The FDIC will continue to work with banks and fintechs to help them understand how they can effectively work together to serve our nation's depositors."
According to information from the FDIC, the guide aims to address concerns McWilliams has heard from both technology companies and the banking industry regarding difficulties arising with “on-boarding at institutions.” A separate recent report from PR Newswire posted to Yahoo! Finance also touched on some of the benefits to banking-fintech partnerships. The report from Cornerstone Advisors, What's Going On In Banking 2020: Outlook for a New Decade, shows 76% of credit unions and 65% of banks claim they expect these partnerships will be crucial to their business strategies.
“Banks and credit unions are acknowledging that fintechs often have better design capabilities than what exists at banks or their major industry vendors,” said Steve Williams, Cornerstone Advisors’ president and co-founder, in the report. “They see partnering as very much a chance to 'bolt in' a better customer experience to their legacy back end in a time frame that can allow them to stay competitive.”
The FDIC’s guidance came at the hands of its technology lab, FDiTech, which is tasked with improving the financial marketplace as transformative technologies quickly change the banking landscape. With this guide, FDiTech is offering resources and developing tools to mitigate the costs and burdens accompanying third party partnerships and risk management, the announcement reads.
“FDIC established FDiTech in 2019 to collaborate with community banks on how to deploy technology in delivery channels and back office operations to better serve customers,” according to the organization. “FDiTech is working to encourage innovation and partnerships at community banks through engagement, technical assistance, tech sprints, and pilot programs.”
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#Fintech-#bank partnerships aim to improve the #financial lives of their respective bank’s customers.
The report (PDF) notes that banks often employ the services of third parties and, as a result of those partnerships, they must identify and control the associated activities and risks.
Generally, banks assess third-party management programs through four basic elements, per the report. They are:
- “Assessing the risk associated with the activity being conducted”
- “Conducting due diligence in selecting a third party”
- “Structuring contracts and reviewing those contracts at appropriate levels at the bank”
- "Overseeing and managing the third-party relationship on an ongoing basis"
Further, some of the items banks might review periodically to achieve those goals are:
- Annual reports on the third party’s registration and licensing
- Their financial statements and obligations
- Insurance coverage
- Audit reports and internal controls
- Customer reviews
