Leave it up to the financial experts and regulators to hinder innovation at every step of the way. Even though most people agree fintech is a positive development for the financial world, some regulators only see it as a threat to the banking system. While it is true banks will need to innovate or risk being left behind, they are actively collaborating with fintech startups.
OCC Feels Fintech Is A Systemic Risk To Banking
US banks and other financial institutions have put off innovating their products and services for many decades. In this day and age of growing digitization, they have been unable to avoid the changes that will befall upon them. Two options are available to banks: either they innovate – by working together with fintech companies – or they risk becoming obsolete. So far, most institutions have opted for the sensible approach.
A new report by the OCC paints a very different picture, though. Fintech is ranked as the top risk to the banking system, alongside the Brexit and the Wells Fargo issues. It is rather strange to see innovation being labeled as a threat, but that is not an uncommon train of thought among financial regulators these days. US Banks are simply incapable of competing with fintech, which is of grave concern.
The OCC report states the following:
“Strategic planning remains important as banks adopt innovative products, services, and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and fintech firms. Failure to innovate to meet evolving needs or financial services may place a bank at a competitive disadvantage.”
Most people are aware of how the OCC wants to bring fintechs under the federally regulated banking system umbrella. While the group is open to letting these companies operate across state lines, they also feel innovation should be curbed somewhat. A lot of US banks are concerned over their inability to compete with fintech startups and seemingly rely on regulators to ensure these new companies cannot disrupt their business model.
For the time being, it remains unknown what this new report means for the financial technology industry in the United States. Banks are legitimately concerned about what the future holds, and they will have to come up with a clear plan of action. The OCC also voiced more concerns over institutions precautions to address cyber security threats. Moreover, the increased reliance on third-party relationships is a significant threat to the US financial system.
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