Federal Reserve paper on fintech partnerships

Earlier this month, the Board of Governors of the Federal Reserve System (Federal Reserve) issued a paper on Community Bank Access to Innovation through Partnerships. In the paper’s preface, the Federal Reserve noted that partnerships between community banks, defined in the paper as “[banks] with less than $10 billion in assets[,]” and third parties providing financial technology solutions (fintechs) can help community banks provide better service to their customers by enabling community banks’ use of technological innovations that community banks could not develop by themselves. The paper looked at different things that community banks might want to consider if they were looking to partner with fintechs to use technology to provide innovations to their customers.

The Federal Reserve was quite clear in stating that nothing in the paper changed anything with respect to its expectations about third-party risk management. For more information about the banking agencies approach to third-party risk management, please see this recent NAFCU Compliance Blog post about the Proposed Interagency Guidance on Third-Party Risk Management. The paper resulted from the Federal Reserve’s outreach to different participants, including community banks, fintechs, and others.

The paper was organized into two different parts. The first part addressed the three types of community bank-fintech relationships that were observed and the pros and cons of each type. The three observed relationships include the following:

 

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