Background
Lack of Regulatory Guidance
The varied landscape of financial technology is not easily defined. “Fintech” is everywhere: in smartphones, data aggregation services, underwriting algorithms and credit scoring systems, to name just a few examples.
Despite growing interest in establishing a workable regulatory framework for fintech, neither Congress nor federal banking agencies have supplied a concrete definition for the term. In popular usage “fintech” connotes virtually any financial product or service that is powered by software or delivered electronically. Fintech includes not only well-established technologies subject to specific rules—like credit cards and electronic signatures—but also cutting edge applications, such as cryptocurrencies and artificial intelligence (AI).
As new chartering options and regulatory sandboxes come into play, the competitive dynamics within the financial sector could change rapidly. As a result, regulatory agencies will need to work together to allow financial institutions of all types to leverage new technologies for the benefit of their customers. Regulations and laws are evolving in a piecemeal fashion as both traditional and non-traditional financial institutions transition to a world of faster payments, alternative data, and machine learning. In this environment, it is important for credit union leaders to understand not only how fintech might fundamentally change traditional business models but also prompt regulatory intervention along the way.
For additional background, credit unions should consult NAFCU’s Fintech Whitepaper.