WASHINGTON—Credit unions must prepare for an uncertain and challenging financial market, says Rodney Hood, who said a big competitor—and partner—the movement must focus on are fintechs.
The NCUA board member addressed CUNA’s GAC, outlining steps he said the agency has taken to keep CUs competitive and successful now and in the future. However, a great deal of Hood’s attention Tuesday focused on what he said is no longer a new threat, while further stating that there is another area that presents a bigger risk to CUs.
In addition, he also addressed how NCUA could host “tech sprints” similar to those hosted by the FDIC and develop a fintech rule.
“If there’s a lesson we’ve learned from the challenges since the pandemic, it’s that this industry cannot rest on its laurels. And the reality is that there are some serious competitive challenges that credit unions will need to be attuned related to fintech,” said Hood. “Right before our eyes we are seeing the financial services model move from a retail delivery model to a digital delivery platform.”
Reaching New Demographics
To meet those challenges will require focusing on opportunities to reach new demographics and, especially, younger generations of banking customers, he said.
“That’s one of the reasons I’ve been so focused on financial technology. I’ve spoken with many of you about fintech before, as it’s an issue I’ve been studying deeply for the last several years to determine what we need in terms of regulation,” Hood told the meeting.
Fintech offerings – whether they provide solutions such as mobile banking, innovative loan products, or data aggregation services—these tools are the future of financial services, stressed Hood.
“Truth be told, that’s already happening. We’re seeing rapid and dramatic growth in the fintech space,” stated Hood, citing an October report from the National Bureau of Economic Research that he said shows:
- Mortgage lending by fintech companies grew 32.5% per year between 2016 and 2020
- Fintech consumer lending grew 11.9% over the same period
- Fintech business lending grew 43.1% over that time
“With growth numbers like that, there’s no question that some of those fintech providers are emerging as serious players in financial services,” Hood said. “At the same time, a lot of the biggest traditional financial services firms have the resources to develop their own proprietary fintech solutions. That’s a dynamic that could leave credit unions in a tight place, getting squeezed from both sides, if the industry doesn’t work proactively to integrate these technologies now.”
No Endorsement, But…
Even with those obvious challenges, fintech is a promising avenue that Hood encouraged credit unions to explore as a strategic imperative.
“Now to be clear, I should emphasize I am not endorsing any firm or technology,” he said. “Technology is simply a tool to support your mission, and it needs to be used wisely. Let’s be mindful about how we approach integrating fintech into the credit union experience, and that you do so in a way that makes the most sense for your institutions and your members.”
Hood said it is not about chasing after the latest fads or fashions.
“I want to see credit unions approach fintech with a sense of purpose and clarity,” he said. “Let’s be open to innovation and experimentation, but always with the primary commitments being service to your members; ensuring the performance of your institutions; and protecting the safety and soundness of the broader system of cooperative credit.”
Temper the Enthusiasm
According to Hood, credit unions also must temper enthusiasm for fintech with a reminder that these technologies are tools — and like any tool they can have positive and negative effects.
“And we’ll not always know in advance what those effects might be. Which means we need to foster an environment of innovation, competition, and experimentation in which the best concepts and solutions can emerge and rise to the top.
“As regulator, I’m seeking a balanced approach when I think about how fintech will integrate with credit unions,” continued Hood. “I want to support and encourage innovation and the growth of the industry, while at the same time ensuring it serves the needs of credit union members; protects the interests of those members in terms of privacy and security; and does not compromise our commitment to the industry’s safety and soundness.”
New Office Created
Hood pointed out the NCUA board has established an Office for Financial Technology and Access at the NCUA.
“Because we knew we needed an accountable entity within the agency focused specifically on fintech issues,” he explained. “This office must also help fintech providers better engage with the regulator. We all know how frequently regulators have been caught flat-footed when confronting new technologies, and I want to ensure the NCUA is prepared.”
He said the office will also help facilitate contacts and conversations between credit unions and fintech providers.
“I’d like the agency to host tech sprints that are intended to serve as a forum for focusing on problems and solutions, and how credit unions and fintechs can work together. I hope to work with my colleagues on the board to bring this to fruition later this year,” he said. “I’m also focused on developing a new fintech rule with my board colleagues, so this is an area where I hope to see a lot of movement in the coming months.”