American Bankers Association Calls for Innovation “Inside and Outside Banking System” in White Paper to Treasury
Last week, in a white paper sent to the Department of Treasury, the American Bankers Association outlined several recommendations to promote responsible innovation in the fintech space. Both startups and traditional banks play a role in driving new technologies, and as a result, regulation must focus on facilitating these innovations now and into the future.
When it comes to fintech innovation, startups enjoy a relative freedom from legacy systems and lighter oversight, which gives them the agility they need to bring new products to market and test them quickly. Banks bring to the table customer relationships founded on trust, which provides an essential foundation to widespread adoption. As a result, partnerships between the two can benefit the fintech industry as a whole.
In the paper, ABA recommends a regulatory framework that includes three key elements. First, regulation needs to fully understand how innovation impacts banking. They cannot just remove barriers to innovation, they have to engage with innovation experts at banks and non-banks alike. Customers are demanding innovation, and banks must meet these demands in order to stay competitive. Thus, the regulatory environment must foster – not hinder – it.
Second, regulators must enable banks to quickly implement new innovations. Since innovation requires a constant cycle of testing, tweaking, and updating products, a complex regulatory environment replete with special supervisory processes enacts significant roadblocks to meeting consumer needs.
Third, security needs to continually be a top focus and priority with any proposed or implemented innovation. If innovations are not delivered responsibly and securely, financial institutions will lose their status as trusted custodians of customers’ financial lives. In a system built on trust, even the smallest breach can do widespread damage.
Ultimately, the paper argues, fintech investment and talent will flow to countries where regulation facilitates innovative thinking and guidelines. By making changes to enable innovation and partnering without jeopardizing financial stability or consumer protection, the regulatory framework in the United States can stay on par with our peers in the international arena who are moving quickly to modernize their own regulations in the space.
