House Republicans Press Acting Comptroller on Bank-Fintech Partnerships
Last week, House Financial Services Committee Ranking Member Patrick McHenry (R-N.C.) led a group of Republicans from the Committee’s Task Force on Financial Technology in a letter to acting Comptroller of the Currency Michael Hsu regarding Hsu’s recent comments concerning partnerships between banks and fintech companies.
“We write to seek clarification of your recent statements as well as actions taken by the Office of the Comptroller of the Currency (OCC) regarding the future of partnerships between banks and financial technology companies (fintech),” they wrote. “Innovation is a critical component of the U.S. economy, and we are concerned with the potential for further uncertainty around partnerships and the consequences for consumers.”
In September, Hsu said at a conference that the expanding number of entities beyond traditional banks who are providing financial services “are creating an increasingly varied and complex set of arrangements, which are significantly more intricate than the standard bank outsourcing relationships of yesteryear.” He also suggested that the de-integration of banking services, “if left to its own devices, is likely to accelerate and expand until there is a severe problem or even a crisis.”
In the letter, the members of Congress outlined several reasons that banks partner with fintech companies. Banks have “the cheapest cost of capital among all capital allocators”, they said, in addition to “relatively large balance sheets, enabling them to absorb new loans rapidly.”
“Moreover, banks typically seek partnerships with fintechs for the comparative advantages they bring to the table, such as more effective branding or marketing and better technology to support underwriting or to manage a customer relationship,” they wrote. “It is often more cost-effective for banks to outsource to a fintech partner, as it can be expensive and challenging for banks to focus on these activities in-house.”
After the initial comments, Hsu told Reuters that his caution over banks partnering with fintechs is not meant to stifle those arrangements, but rather reflects his concern that firms must adequately gauge their risks.
“Look, bank-fintech partnerships, they’re here to stay,” he said. “I’m not trying to do away with them. This is the future, so let’s do the future right.”
Read the Republicans’ full letter here.
