'Fintech is integral to credit unions': Q&A with NCUA's Rodney Hood

Rodney Hood, board member of the National Credit Union Administration, has been informally pinch-hitting as the federal agency's fintech director.

That de facto role will soon end, once the NCUA names a director of financial technology and access to oversee its Office of Financial Technology and Access, which is set to open in early January. But Hood has made his mark by spearheading a regular discussion series where he brings together fintechs and leaders in the NCUA and by getting the new office up and running. Most recently, Hood, along with the rest of the NCUA board, voted to advance a proposed rule that would allow credit unions to participate in or purchase more member loans from fintech companies.

"It is … his vision that paved the way for the rulemaking we are considering today," said NCUA chairman Todd Harper in a December 15 statement on the proposed rule.

Fintech and regulation are both a far cry from Hood's original career path of an episcopal priest. He spent time in Zambia and Zimbabwe as a missionary, but eventually felt the call to banking instead. Hood served as NCUA chairman from April 2019 until January 2021. He also spent time on the NCUA board from November 2005 until August 2009. In addition, Hood has served as a corporate responsibility manager for JPMorgan Chase and associate administrator of the Rural Housing Service at the U.S. Department of Agriculture, and more.

In an interview with American Banker, Hood discussed the roots of his fintech discussion series, which includes meetings with underwriting software company Zest AI, conversational AI provider Posh Technologies, and loan decision engine QCash Financial. He also explained why the NCUA benefits from going "last" in creating its office of innovation and why he thinks fintech innovation is vital for his industry's survival. The interview has been edited for clarity and space.

What is the Office of Financial Technology and Access? Why the emphasis on "access"?

RODNEY HOOD: Fintech is integral to the ongoing success of the credit union system. If credit unions are going to compete today they need a lot of tools, including data aggregation, the ability to expedite payments and the ability to make more loans.

But I also want credit unions to look at access. Financial inclusion is a civil rights issue of our generation. How do we use financial technology to spur greater financial access in underserved communities, whether they are low- to moderate-income, minority, differently abled, veteran, tribal or rural? This new office within the NCUA will look at how we use fintech solutions to bring broader financial access.

I don't want people to think that my excitement is because this is a shiny new toy. I am being very intentional and emphatic that we are not just innovating because it's cool, but because proper deployment of these tools should help marginalized communities and individuals migrate from pernicious payday lenders into credit unions or banks. In underserved communities, no matter where I go in the world, they are all using technology.

How is the Office going to do that?

I want to pursue tech sprints and sandboxes. I believe that a lot of fintech companies can help us do a better job at regtech or supervisory tech. Our peers at the Federal Deposit Insurance Corporation have done a tech sprint around the modernization of the call report. I'd like for us to do tech sprints where we bring in individuals to tackle solutions we are wrestling with, such as the modernization of our NCUA call report. How do we use real-time data? How do we get a lot of the information we need to make informed decisions? Once a quarter ends it could be several weeks or months before the data is scrubbed and analyzed to make decisions. Or, how do we develop tools that can go deeper and understand an underserved community's ability to pay?

Whenever I encounter fintech leaders I meet with them one on one. I do an informational session, including what they are doing around data and how are they looking at consumer protection. I bring them back to the agency so we can do a call with senior leaders and ask questions. How do you work with credit unions? What are some of the barriers and success stories? We invite them in but we let them know this is not a marketing ploy, this is more for us to understand the safety and soundness of their institution. I've been doing it every week — we call it the NCUA fintech discussion series — and once our [new director] gets acclimated, I'm hoping they will resume with the series I created.  

The new members [of credit unions] are Generation Z and millennials. They are going to expect their credit unions to do things such as remote deposit capture and to have swifter payments. That's another reason why I'm so eager to have this new fintech office because if credit unions want to remain viable, they need to embrace these tools. Otherwise, I don't know if I'll have an industry to regulate.

How will the NCUA's Office of Financial Technology and Access differ from similar offices at other financial regulators?

We and the Federal Housing Finance Agency are the last two financial regulators to create offices of innovation. We are all looking at, how do we make sure the institutions we oversee are looking at safety and soundness and fair lending and fair compliance. The benefit of going last is I've been able to talk to some of the other fintech offices and learn what they wish they could have done differently. I would like to see us regulators that have fintech offices get together and collaborate, maybe around the Bank Secrecy Act or digital identity. I think there is room for us to have our own niche and there will also be opportunities to work together.

For your weekly fintech series, how did you decide which companies to meet with?

I started the series in the third quarter of this year. I've been attending 15 to 20 conferences per year, either speaking as a keynote or a panelist. As I walk around the expo hall and meet with some of the fintechs, all it takes is one person to say, 'Mr. Hood, we already have 25 credit unions [as clients].' Once I hear they have a credit union relationship that gets them on my list.

We want to make sure credit unions are adhering to third-party due diligence. Are they vetting their vendors? Are they walking them through the mechanics of a safe, effective partnership? Do they have good governance structure? When we bring fintechs in to meet with us we are walking them through the things we care about but we also want to hear from them. We are not micromanaging or tweaking their business model. This is us understanding as supervisory regulators how they are engaging with our entities.