Transforming Financial Services
Innovations in technology are transforming relationships between the Fed, the banks we supervise, and their customers. In our 2015 annual report, What We've Learned…and why it matters, we explain how the Fed is poised to evolve alongside fintech innovations.
One of the key responsibilities here at the San Francisco Fed is that we supervise the banks in the Twelfth Federal Reserve District. A key part of our understanding of what's going on in banking and supervising, is understanding how the world is changing, how banking is changing, and conditions are changing. Everyone is talking about fintech. It's always in the news. Everyone says it's changing banking here in the Twelfth District. I've got a very basic question. What is fintech?
Other than a contraction of the words finance and technology, it's really about using technology to better deliver banking products and services. What you typically might go to a bank for, you can now sometimes do on your smart phone. It really took off in the area of lending where a lot of these so-called marketplace lenders developed platforms to deliver loans to consumers that were less expensive, easier to understand, and they could do it all online. The industry has grown to, as we understand it, well over a hundred such lenders.
We also have companies that make it easier for people to exchange money, so instead of having to hand you $20 to pay for my half of a dinner bill, I can actually text that to you through an app.
In fintech, are these companies that the San Francisco Fed regulates, and if not, why are we so interested in fintech? Why does it matter for us?
As a general rule, we don't regulate these companies, but the fact of the matter is that they're changing the dynamics of the marketplace. It's really important for us to understand what's happening in the marketplace in order to understand how to execute our supervision responsibilities. Almost every one of these companies has a bank partner at some stage of the process. And since we regulate those banks, it's equally important that we understand what those partnerships look like and the implications for the banks and the consumers that the banks serve.
We here at the San Francisco Fed have spent time internally studying the market. We actually hosted a conference last year where we brought together bankers and regulators and fintech companies, consumer advocates, policy makers, just to try and enhance our understanding and actually get some feedback on how we should be thinking about these issues. We continue to work internally to build our expertise and now collectively across the Federal Reserve System to make sure that we've got a mechanism in place to really truly understand what's happening so that any reactions we do make are appropriate and don't have unintended consequences.
Do you see this as primarily a bank supervision issue, or do you think it really affects other parts of the Fed as well?
Well, I think it does affect other parts of the Fed. We certainly have payment system responsibilities that really get at the heart of some of these new tools that are designed to make payments easier and faster. We also have engaged our colleagues from Research and Statistics to make sure that we collectively understand the issues at play here and that they can consider that in their work as well.
I would hope that a year from now we would not only have enhanced our understanding, but have a good mechanism in place to actually follow these developments and be prepared to react to them as appropriate. One of our goals would certainly be to do things that foster the responsible innovation that does in fact result in better outcomes for consumers; and keeping in mind that our overall responsibility is for the safety and soundness of the institutions that we supervise and to protect the consumers.
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Fintech: The Power of the Possible and Potential Pitfalls
An Overview of Our 2015 Annual Report
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Regional Influences on Monetary Policy