OCC's Curry: Fintech a 'Strategic Risk' for Small Banks

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WASHINGTON — Smaller banks risk falling behind if they do not make space for financial innovation, Comptroller of the Currency Thomas Curry warned Friday.

Speaking before the 11th Joint Community Banker Symposium at the Chicago Fed, Curry said that community banks need to assess the strategic risk of the rise of fintech — and ensure they are not left behind.

"One particular issue testing banks' strategic risk today is the tectonic shift underway regarding innovation and financial technology," he said. "While fintech companies are still a small portion of the industry, their rapid growth requires banks and regulators to ask big-picture questions about the future of banking."

Banks should begin asking themselves questions about how their products fit the needs of their consumers — including the growing millennial contingent, Curry said.

He said they should also ask themselves: "Are we offering the right products, and have we identified the right goals? Do we have a plan for adapting to the changing marketplace in the next five or 10 years?"

But Curry acknowledged that for cash-strapped community banks, adopting new technologies is easier said than done.

"While larger banks and some smaller ones may have the resources to fund innovation labs, conduct their own research and development, or even purchase a more mature fintech company, many smaller banks may have to seek alternative ways to incorporate innovation into their strategies and business plans," he said.

The comptroller suggested that in order to adopt new technologies on a budget, smaller banks should team up.

"Collaboration," he said, is "a useful tool for community banks to reduce costs, better serve customers, and even reach new markets."

Some banks have already found ways to coordinate better. Last year, for example, Umpqua Holdings in Portland, Ore., created a unit dedicated to fostering collaboration among financial institutions and parties in other industries such as data analytics and user design.

But the comptroller also emphasized that partnerships with fintech companies can also bring new sets of risks.

He advised banks to manage those by ensuring the partnership is the right strategic decision for a bank, the fee structure is appropriate; user controls are implemented; and any third-party provider's performance is monitored.

"Working together to evaluate and monitor third-party service providers can help manage the risk, and some community banks already are finding success with this type of collaboration," Curry said.

Though the OCC regulates fewer community banks than the Federal Deposit Insurance Corp., the agency has made moves since last year to address how fintech should be supervised.

In March the OCC came out with a white paper on "responsible innovation," which led to an inquiry into how the agency should address financial innovation. In October the OCC announced a plan to open an office of innovation to coordinate outreach and improve the agency's internal handling of matters regarding fintech.

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