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Essential Fintech Reading: March 26-April 1

OCC Considering New Fintech Regulations

A white paper issued by the Office of the Comptroller of the Currency (OCC), an independent bureau within the Treasury Department, proposes the establishment of an office for innovation that would "serve as a forum to vet ideas before a bank or nonbank makes a formal request or launches an innovative product or service.” The Wall Street Journal's Gabriel Rubin notes that the white paper supports the idea of letting banks and nonbanks test out new fintech products on a small scale before full rollout.  "The report ... urged regulators to evaluate their 'low risk tolerance for innovative products and services,' a response to the gripes of many in the industry who say that regulators stifle innovative ideas, particularly in the wake of the financial crisis." Rubin writes that OCC "is considered to be the best-positioned of federal banking regulators to bring fintech firms under the same regulatory regime as banks." OCC has set a deadline of May 31 for comments before it progresses in developing a framework to update financial technology regulations. 

Consumer Banking, Fund Transfer And Payments Most Likely To Be Disrupted By Fintech

PwC's survey of CEOs, Heads of Innovation, CIOs and digital/technological transformation leaders in financial services reveals that consumer banking, fund transfer and payments are the sectors that are most likely to be disrupted in the next five years. 


The survey results are detailed in the PwC report Blurred Lines: How FinTech is shaping Financial Services.

PwC considered some of the biggest trends in the banking industry and how likely FIs would be to respond to them. "Solutions that banks can easily integrate to improve and simplify operations are rated highest in terms of level of importance, whereas the move towards non-physical or virtual channels is ranked highest in terms of likelihood to respond," wrote PwC. The rise of peer-to-peer lending and emergence of mid-market funding mechanisms like crowdfunding were seen as less important and less likely to prompt a response.


In the fund transfer and payments industry, respondents prioritized advanced tools and technology to protect consumers from identity theft, as well as a push for faster payments. "Today’s mobile-first consumers expect immediacy, convenience and security to be integral to payments. In our culture of on-demand streaming of digital products and services, archaic payment solutions that take days rather than seconds for settlement are considered unacceptable, motivating both incumbents and newcomers to develop solutions that enable transfer of funds globally in real-time," reads the report.


Rise Of Fintech Will Prompt Loss Of 1.7 Million Jobs Across European And US Banks

As fintech companies encroach upon profitable areas such as lending and payments, US and European banks will cut another 1.7 million jobs in the next decade. This is the prediction of a new Citigroup report and would represent a more than 30 percent drop in headcount on top of the 730,000 jobs that US and European banks have already shed since their peak. The Financial Times writes that the catalyst for the job cuts is "new technologies that enable banks to do more online and less in branches" and "the financial imperative for banks to be leaner as they deal with an onslaught of new competition in their most profitable niches." Citigroup observes that lending is a key battleground, accounting for 46 percent of the $19 billion in fintech funding over the last six years.

Banks Grapple With Future Of Digital Identity

Bryan Yurcan of American Banker discusses the efforts of FIs around digital identity. "For banks, a single, federated digital identity would bring several benefits. It would be much easier for banks to know who they were dealing with if they could get quick access to a token or digital certificate that established the person's identity," writes Yurcan. A number of FIs have been experimenting in this arena, including USAA and BBVA Compass. USAA "is partnering with a government agency on a project that would involve allowing USAA's 10.7 million members to authenticate themselves using the same username and password as for online banking." The U.S. unit of BBVA began offering a service with Dwolla that allows customers to send and receive real-time payments, using an authentication and tokenization process (FiSync) that "spares BBVA account holders from having to provide sensitive bank account information or credentials to Dwolla or any other party."