Back to the Future
Some are old enough to remember when the internet and financial services came together in the mid-1990’s, enabling brokerage customers to trade securities online. Clunky dial-up services were agonizingly slow, but many called this the ‘democratization’ of financial services, bypassing human brokers and avoiding the higher costs typical of traditional brokerage providers.
It’s no surprise the genesis of today’s collaboration between traditional financial institutions and fintechs is closely associated with the trajectory of technology innovations and consumer preferences over the past 30 years. In 1995, there were 9,941 commercial banks in the US; by 2023 that number dropped to 4,867 (Federal Reserve). In 2010, 20.2% of Americans owned a smartphone (Statista); by 2023, 77% had a smartphone (Pew Research Center). And a recent study reported that 78% of adults in the US now prefer to bank via a mobile app or website while only 29% prefer to bank in person.
Banks growing affiliation with fintechs makes sense given the fundamental shift of consumers. By delivering digital consumer-friendly service, they reduce their cost of delivery, staffing and branch locations. Indeed, Gartner reported in 2024 that the average bank now partners with over nine fintech companies concurrently. However, with all the apparent advantages, these partnerships can be fraught with problems. One recent example is the bankruptcy of Synapse and its impact to 85,000 customers of fintech start-up Yotta.
Community Financial Resources (CFR) supports new innovations and technologies that level the playing field – particularly for low-wealth consumers – providing greater access and economy, with appropriate safeguards. As the relationships between traditional financial institutions and fintechs evolve, CFR believes these are the key issues that need to be addressed:
- Transparency of fees and charges. Not all fintechs disclose the true costs to consumers
- Absolute clarity of FDIC insurance coverage (or not) on customer deposits
- Inclusion of low-wealth consumers, providing access without hierarchy based on assets
- Continuity of service, and awareness that not all consumers feel comfortable with a ChatBot
- Regulation. Fairness and parity of oversight given different business models. Which regulator is responsible for what part of the relationship? What consumer protections are in place?
- Who owns the customer data – the bank or the fintech?
- What are the privacy and security measures to protect consumers, and what entity is on the hook when something goes wrong?
These issues may seem obvious, but CFR feels the industry and regulators are struggling as the number and complexity of these relationships grow. CFR believes the response to these challenges should always be viewed through the lens of the consumer — ensuring safety, continuity and transparency, particularly for low-wealth communities. In 1863, Hugh McCulloch, then Comptroller of Currency, addressed a letter to national banks. His “Advice to Bankers’ stated, ‘Treat your customers liberally, bearing in mind the fact that a bank prospers as its customers prosper.” Whether your customer prefers a human or digital relationship, this mantra still resonates today.
