Don't Ignore This FDIC 'Request for Comment'

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In today's highly active regulatory environment, it feels like the banking agencies send us daily emails asking for comments on a particular industry topic. And the requests don't always relate to a proposed rule under consideration. For most banks and industry representatives, there are many day-to-day tasks that are more important than providing input to regulators on these subjects.

But the latest letter from the Federal Deposit Insurance Corp., asking for comment on the agency's plan to explore the economic inclusion potential of mobile financial services, is different. The request is an opportunity to convince regulators that emerging technology is the best approach to engaging the underserved. In so doing, banks will be able to overcome challenges – related to the Community Reinvestment Act – in completing mergers and acquisitions.

Most stalled merger transactions result from consumer advocacy groups criticizing a bank's record in providing banking services to underserved communities within its market area.

The very public outcry over a pending merger often focuses on how strong an acquirer's CRA compliance plan will be once it manages the target bank's branch network. In various cases, critics have pointed to the records of reaching the underserved for both the acquirer and the bank to be purchased.

Historically, a popular approach to overcoming the complaints is to analyze the branch map of the bank receiving the complaint – noting the placement of those branches relative to low-income census tracts, their hours of operation and the services made available to underserved consumers in those branches.

BB&T, for instance, successfully used this argument to overcome complaints from consumer advocacy groups based on its lending practices in its 2015 acquisition of Bank of Kentucky.

In that transaction, the Fed specifically cited BB&T's branch distribution in its markets and the accessibility of its branches to low- to moderate-income areas when it evaluated BB&T's CRA performance. The analysis in that approval order is just one of many examples of the use of branch placement to bolster an evaluation of a bank's CRA performance.

But in the digital age, pointing to a branch network that caters to underserved consumers will increasingly not work to hasten merger transactions.

Banks are closing and consolidating branch locations at a stunning pace, and most are carefully studying transaction volume to justify continued operations of branches. As banks continue to pull back on physical branches, they will be less able to point to brick-and-mortar branches as their tool to engage underserved consumers, which was a common strategy before the rapid emergence of digital technology.

In contrast, banks' focus on mobile products not only provides innovative benefits to underserved consumers who may lack branch access, but in light of regulators' interest in the potential for mobile technology to expand economic inclusion, this focus may also help institutions overcome regulatory and community-based challenges to mergers.

Institutions looking to overcome challenges to mergers can provide data illustrating how their mobile applications engage underserved communities. That can ease any criticism of their branch networks. This only furthers the argument that banks should focus investments on mobile and online platforms. They can look to institutions such as KeyBank and USAA that have launched apps and other tools to help customers with their financial management. They can also become more aggressive in partnering with third-party digital providers such as Popmoney, which can help consumers transfer funds, or MX, which provides a more global understanding of personal finances.

The FDIC, which published a white paper in 2014 on the economic inclusion potential of mobile services, in its letter sought feedback on institutions' steps to implement mobile strategies identified by the FDIC as meeting consumer needs.

The purpose of many of these applications is to assist consumers in understanding their savings needs and the behaviors they need to adopt in order to get access to cheaper financial services. These tools, when packaged with a marketing plan targeted to underserved communities and detailed by tracking consumer adoption, would create an ideal rebuttal to any consumer group alleging that a bank is not adequately serving its communities.

Banks should use this opportunity to write to the FDIC about their efforts to serve more consumers through mobile technology. Banks can demonstrate to their regulators this is an effective route to reaching the underserved. After all, approval of your next merger may depend on it.

Jonathan Hightower is a partner at Bryan Cave.

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