ALEXANDRIA, Va.–“Government” and “innovation” may be two words not often found in the same sentence, but NCUA Board Member Rodney Hood believes there is now reason to believe the two are compatible, following the creation of the agency’s new Office of Financial Technology and Access.
Hood, who has been championing such an office since he was chairman in 2019, is quick to note the new office isn’t just about technology and fintech, which may get the headlines; it’s about using those channels to also help credit unions expand financial inclusion—that’s the “access” piece.
As CUToday.info recently reported, a new milestone has been passed in the creation of the office with the hiring of Charles Vice to lead the effort. In announcing the hiring of Vice, who previously served as commissioner of the Kentucky Public Protection Cabinet’s Department of Financial Institutions and was also with the FDIC prior to that, NCUA said Vice will “serve as the principal advisor to the NCUA board on agency policy with respect to fintech, and fintech developments and transformation initiatives in the financial services sector, including cryptocurrency, blockchain, and distributed ledger technology.
Although the two other members of the NCUA board have been supporting the creation of the Office of Financial Technology and Access, it has been Hood who has been the driver, consistently talking up the opportunities fintech provides and urging credit unions to be aggressive in pursuing opportunities.
Federal Fast-Followers
“We may not lead in government when it comes to innovation, and I don't think you're ever going to find a government entity being an early adopter—so perhaps we are fast-followers,” said Hood when asked about how government and innovation.
Hood said the plan is to be pragmatic and deliberative around the best tools and partnerships credit unions can deploy with members, and that includes ensuring consumer protection and safety and soundness.
“I often talk about financial inclusion as a civil rights issue,” Hood said. “I want to make sure whatever I'm doing is through the lens of helping vulnerable communities. We’re not just innovating to be cool, we're innovating this for greater financial inclusion.”
Hood said he believes the new initiative has the potential to be an “integral” piece in the life of the larger credit union system.
“I'm not one who says, hey, we need to be chasing the latest shiny toy, but neither am I one who thinks our 4,800 credit unions serving 134 million members cannot embrace technological change,” said Hood, pointing to digital banking and remote deposit capture as two technologies he said have really helped credit unions meet the evolving needs of members.
The Future of Credit Unions
“There are no assets if our credit unions are not evolving into 21st century financial services providers. If they don't adopt these things, do I even have an industry to regulate?” he asked. “And could NCUA still continue to even survive as an independent entity if we are not evolving and able to keep up with the times?”
It's those latter questions, he said, that led to his belief while serving as chairman there might be a need for some type of office of innovation as the number of fintechs continued to grow. While he is now Board Member Hood following the elevation of Todd Harper to chairman, Hood said, “No matter what title I have, I still think that technology is integral to the ongoing success of the credit union system and I was very proud that my fellow board members supported me in adding a new office of innovation,” said Hood. “But it's also the office of access.”
Rodney Hood
Learning from Other Regulators
In the lead-up to the creation of the new office at NCUA, Hood said spoke with his counterparts at FDIC, the OCC, the Commodities Futures Trading Commission, and the CFPB, all of which have offices of innovation in some form, to see how they are deploying various tools and resources.
“We are now able to work with the other regulators when it comes to looking at technology,” Hood said. “I think that there are things that we can do jointly where we're going to be able to really help provide a strong, robust ecosystem.”
Among the lessons he said he has taken away from discussions with other agencies is that it takes time to build out the platform. That begins with hiring someone to oversee the initiative, and then gathering feedback and input from all those involved.
“I think what often happens is there is this dichotomy that people think that fintechs are just taking over financial services,” Hood observed. “What I've learned from the folks from the FDIC and from folks at the CFTC is that we need to look beyond the news sites and think about how can technology and fintechs work in partnership and collaboration with our regulated entities? One of the things that I learned from the FDIC is that you can work with fintech to provide solutions to what have been problems. Financial inclusion was an issue that the FDIC wanted to address. Serving vulnerable, underserved communities is something I'd like for us to do here at NCUA.
Sprinting Toward Solutions
“They did what they call a tech sprint where they basically put out a request for information from fintechs that are serving the underserved and that had financial tools that could help banks go deeper in the credit range, maybe below 600, to see if we can make folks bankable,” Hood continued. “They did a number of things such as a Shark Tank-like competition. I got to be one of the judges. It was an all-day panel. I have learned that those are the things that we can do at NCUA to spur greater inclusion.
“Why not do a similar tech sprint around maybe payment systems?” Hood asked. “How can we have faster payments? Or, maybe another one. We have 134-million members of credit unions, so what if we could do something around knowing your customer?”
About the New Guy
Hood noted Charles Vice is still very early in his tenure with the agency and is in the process of learning more about the kinds of things NCUA is doing.
“The advantage he has is that he's worked in this industry for almost three decades,” Hood said. “He knows a lot of our ecosystem.”
That includes a good relationship with NASCUS and other state regulators, Hood added.
Hood has long been interested in fintech, pointing out he has been holding what he calls an “intense discussion series” in which he tries each week to meet with a fintech that's worked with credit unions to learn how they're serving CUs and helping that credit union to serve its members.
Charles Vice
In addition, he said he attempts to bring representatives of those fintechs to NCUA to meet with agency leaders to discuss issues, an effort he hopes to hand off to Vice.
“I've been wanting to get this person for several years,” said Hood. “We at NCUA have been pursuing a fintech agenda, which you can see in some of the things you've seen come out of the agency. We’ve done supervisory letters telling credit unions it's alright for them to engage in cryptocurrency or, more broadly, digital assets. We had a Letter to Credit Unions talking about the use of blockchain and distributed ledger technology, letting them know there is nothing within the Federal Credit Union Act that prevents them from engaging in the use of technology, provided they are doing their appropriate diligence. I don’t want people to think we are just sitting by.”
Not Creating the Party, But…
What will the new office mean to credit unions themselves? Will there be something they can touch and feel and directly benefit from?
“I wouldn't say we're going to foster partnership opportunities for credit unions, we're not going to create the party, we're not going to tell credit unions with whom to partner, but we certainly want to make sure we're providing a regulatory framework for the empowerment of credit unions to know that yes, it is safe and sound for you to work with these third-party service providers who are helping you better serve your members, who are helping you provide greater access to affordable accessible credit,” Hood explained. “You're going to see this person convening opportunities for credit unions and fintechs to be in the same room, but also convening opportunities for fintech and NCUA. We have over 1,000 employees and we need to continue our learning curve and trajectory, as well. So, Charles would be helping provide us with opportunities. And when he's out and about he may hear that there's been an impediment to a project working with a credit union, maybe there is an issue around them not understanding a rule or reg-making.”
Playing in the Sandbox
Hood said he envisions the kinds of “regulatory sandboxes” other regulators have organized in which a real-life environment is created for the testing of innovative technologies, products, services or approaches that are not fully compliant with the existing legal and regulatory rules.
“We’ll be bringing that fintech into the agency and having them learn how they can address the regulatory impediments before they go to market, rather than going to markets and us having to perhaps tweak their products,” Hood said.
Hood said he expects Vice will also advise the NCUA board on the rollout of the agency’s new exam system, MERIT.
“This is not a luxury. I look at everything that he's going to be doing as a strategy,” said Hood.
Narrowing Down a Definition
Fintech is a very broad term that encompasses a variety of offerings. When asked by CUToday.info if he could bring some focus to the type of fintech efforts and partnerships he would like to see, Hood was quick to again cite financial inclusion.
“We still have 40% of American households who have difficulty obtaining $400 in emergency funds,” Hood said. “We still have some 50-million individuals who are what we call the ‘credit invisible,’ meaning they have no discernible credit score. I would like to see this office focus on how credit unions can better serve the financially invisible, the financially underserved.
“It goes back to the name of the office; it is the Office of Innovation and Access,” Hood stressed. “I was very intentional about creating that name because I did not want people to think that we were going to take our eye off the ball. Just by virtue of that office having access in its name, I'd like for them to focus on financial inclusion.”
100 CUs Involved
Hood, who said there are approximately 100 credit unions already working with fintechs on improving inclusion, noted he had authored an op-ed in The Wall Street Journal following the murder of George Floyd in which he talked about banks and credit unions coming together to promote financial healing and to provide opportunities.
Similarly, he said he worked with his fellow board members, Chairman Todd Harper and Vice Chairman Kyle Hauptman, to create the separate ACCESS initiative, which stands for Advancing Communities through Credit Education, Stability and Support.
Should the new office host a Shark Tank-like event, he’s like to see an initial focus on tackling inclusion, Hood said. Other issues could also include compliance and improving compliance with Bank Secrecy Act reporting.
Pragmatic Approach
Hood said he is hopeful Vice will soon be able to share with credit unions some of his plans. For now, Hood said Vice is doing the “pragmatic” thing in reaching out to various credit union, fintech and regulatory leaders.
“The main thing now is the fact that you have three engaged board members who all worked around hiring him,” said Hood, noting the decision was unanimous. “I think that when he hits the ground running you will be able to not only hear his artistic vision for the future, but commitment to this office.”
Hood again noted he does not want the new office to lose its focus.
“I want to make sure that this office keeps credit unions tethered to the whole mission of serving people of modest means and demonstrating people helping people,” Hood said.