BPI and TCH Comment on Bank-Fintech Arrangements

Ladies and Gentlemen:

The Bank Policy Institute^[1] and The Clearing House Association^[2] (the Associations) appreciate the opportunity to comment on the request for information on Bank-Fintech Arrangements InvolvingBanking Products and Services Distributed to Consumers and Businesses (RFI) issued jointly by the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (each an "Agency," and collectively, the "Agencies").^[3]

As discussed in the RFI, bank-fintech partnerships where the fintech interacts directly with the customer in providing banking products and services (sometimes referred to as front-end partnerships or "Banking-as-a-Service") present both opportunities and enhanced risks to banks, fintechs, and customers. While the RFI was broad in describing various types of arrangements between banks and fintechs, we understand its focus to be on bank partnerships with non-bank technology companies that allow the non-banks to deliver financial products and services directly to customers by leveraging a bank's infrastructure.^[4] That infrastructure includes the bank's ability to accept deposits, process payments and issue credit. This model gives rise to a range of so-called 'as-a-service' arrangements involving fintechs that directly engage with the end-customer and, in certain cases, a middleware platform provider that sits between the bank and fintech.^[5] However, we note that not all bank relationships with fintechs are partnerships or constitute an 'as-a-service' arrangement, and some relationships with fintechs may be more appropriately characterized as customer relationships or vendor relationships, which represent a lower level of integration. For purposes of this comment letter, we focus mainly on partnerships.

Like the Agencies, we support relationships that are consistent with safe and sound practices and in compliance with applicable laws and regulations, including those designed to protect consumers, such as fair lending laws and prohibitions against unfair, deceptive, or abusive acts or practices and those addressing financial crimes (such as fraud and money laundering). Partnerships can foster innovation and opportunities in new markets that banks may not otherwise have access to - and, in doing so, fintechs can help banks extend their geographic reach and diversify their deposit and credit portfolios.

Our member banks have dedicated significant resources to building relationships with a variety of fintech partners and, in some cases, also materially strengthening fintech companies' risk management and compliance controls. In our experience, our banks employ appropriate levels of oversight and engagement with their partner fintechs, specifically tailored to the unique characteristics of each arrangement. When necessary, our member banks appropriately calibrate their oversight and engagement to provide greater levels of oversight and engagement for those relationships that pose heightened risks as contemplated by interagency guidance.

To read the full comment letter, please click here, or click on the download button below.

[1] BPI is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks, and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

[2] The Clearing House Association L.L.C., the country's oldest banking trade association, is a nonpartisan organization that provides informed advocacy and thought leadership on critical payments-related issues. Its sister company, The Clearing House Payments Company L.L.C., owns and operates core payments system infrastructure in the United States, clearing and settling more than $2 trillion each day. See The Clearing House's website at www.theclearinghouse.org.

[3] OCC, FDIC, Federal Reserve, "Request for Information on Bank-Fintech Arrangements Involving Banking Products and Services Distributed to Consumers and Businesses, "89 Fed. Reg. 61577 (July 31, 2024).

[4] While the RFI was issued broadly to cover 'Banking Products and Services Distributed to Consumers and Businesses,' it is critical that the particular type of end-customer be considered in risk assessments of bank-fintech partnerships and in how the Agencies ultimately issue further guidance and/or regulation. Business relationships are distinct given the sophisticated customer base; a crucial distinction that must be taken into account by the Agencies with respect to evolving business banking offerings in the digital age.

[5] This letter does not specifically address any other types of bank-fintech relationships such as those where the fintech provides operational technology or facilitates traditional bank-customer relationships. See, e.g., Federal Reserve, "Community Bank Access to Innovation through Partnerships" (Oct. 2023), available at: https://www.federalreserve.gov/publications/files/community-bank-access-to-innovation-through- partnerships-202109.pdf. For example, we do not intend to address situations where the bank and fintech work together to promote business development for the bank's products and services offerings.