OCC Head Indicates Scrutiny of Bank-Fintech Relationships May Be on the Horizon

Speaking before a conference of bankers in New York hosted by the Bank Policy Institute and the Clearing House Association last week, Acting Comptroller of the Currency Michael Hsu said that the OCC was paying close attention to bank-fintech partnerships. In his remarks, Hsu said 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 said that his strong sense is that the de-integration of banking services currently taking place, “if left to its own devices, is likely to accelerate and expand until there is a severe problem or even a crisis. Like the globalization of manufacturing and the disintermediation of credit, the efficiency gains of these changes can be enjoyed immediately, while the most material risks do not manifest for some time.”

While he suggested that the partnerships between banks and fintech companies warrant scrutiny to avoid a potential crisis, Hsu also noted that there are benefits to such partnerships and reasons they take place.

“Digitalization has put a premium on online and mobile engagement, customer acquisition, customization, big data, fraud detection, artificial intelligence, machine learning, and cloud management,” he said. “These activities require expertise and economies of scale that most banks do not have.”

“Fintechs and big techs have stepped in, starting with payments but expanding well beyond that,” he continued. “The result is an increasingly de-integrated stack of banking services, with technology firms competing across many layers.”