Yesterday, the House Financial Services Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence, led by Chairman Bryan Steil (WI-01), examined how bank-fintech partnerships are modernizing financial services and expanding access to innovative products for consumers and businesses.
On the Need to Clarify Fintech Regulatory Frameworks:
Full Committee Chairman French Hill (AR-02) said, “I've seen firsthand throughout my experience that financial institutions’ embrace of technology can really enhance consumer choice and improve Americans' financial lives in so many different ways, and also improve the operation of the institution from a compliance point of view and documentation point of view. But, we also have to recognize that the purpose of this hearing today is to think about the regulatory framework. Do bank supervisors and examiners have the training they need? Are they properly accounting for these relationships?”
Subcommittee Chairman Steil questioned witnesses on market trends for bank fintech relationships, to which Ms. Barrage, Partner, Morrison Foerster, replied, "The types of arrangements that we're seeing are very focused on digital assets and AI, consistent with the mandate of this subcommittee. We are seeing banks looking to third parties to help them do digital asset custody, so on chain activities. We are seeing banks band together to figure out how they're going to do tokenized deposits with fintech parties. We are also seeing some banks publicly partner with exchanges to allow their customers to buy, sell, and hold crypto. So, there are a wide variety of these types of arrangements. I think they will continue. And on the AI side, as my testimony describes, I feel like there's a lot of opportunity for upscaling in this area.”
On Gaps in Fintech Regulations Compared to the Speed of Technological Change:
Full Committee Vice Chairman Bill Huizenga (MI-04) said, “We've seen supervisory attention to bank fintech arrangements accelerate, particularly under the Biden administration, in my opinion, but several witnesses have noted material examiners' expertise gaps. I think that's a polite way of saying we've got regulators that aren't up to speed necessarily. In fact, GAO had a 2023 report which flagged the need for examiner upscaling, that was their term, in fintech, IT, digital assets. … I personally had a couple of weeks ago an opportunity to spend four days in Silicon Valley looking at tech, looking at innovation that's happening. And frankly, I was struck by the speed of innovation, the speed of change in technology. And I think it underscored my fear, fear that many have, that regulations and regulators are not keeping up with the speed of change in business.”
On Supporting Responsible Innovation:
Rep. William Timmons (SC-04) said, “As this subcommittee continues to examine how emerging technologies are becoming more integrated into everyday finance, innovative partnerships between banks and fintech firms are helping make financial services more efficient and more accessible for consumers and small businesses. These partnerships are modernizing payments, expanding access to financial tools, and helping community banks compete in a rapidly changing economy. They also give consumers faster and more convenient ways to manage their finances in an increasingly digital world. At the same time, banks must continue to uphold strong standards for consumer protection, data security, and financial integrity.”
On the Benefits of Bank-Fintech Partnerships:
Rep. Mike Haridopolos (FL-08) questioned witnesses on how fintech relationships help small businesses, to which Ms. Khalili replied, “I think we've also talked a lot about access to credit and also choice in credit, and this is where we see the nontraditional underwriting metrics that are often utilized in these sort of fintech-bank partnership relationships really accrete to a broader credit box that is still safe and sound by utilizing nontraditional metrics that really allow you to see the full health and wellness of a business, rather than in real time, versus as trailing last month's bank statement sort of thing, which I think then allows for more products and services to be offered to the people that are most in need of them.”
Rep. Troy Downing (MT- 02) said, “Bank fintech partnerships have the ability to make it easier for constituents in very rural areas to access banking services. And Montana's second district is very rural. We have more cows than people. It's incumbent upon Congress and our regulators to ensure our laws foster modernization and innovation.”
Witnesses Echoed the Work of the Committee:
Ms. Barrage said, “This Committee has long championed innovation and responsible partnership between traditional financial institutions and technology companies. Bank-fintech partnerships, when structured thoughtfully and subject to appropriate regulatory oversight, represent a significant opportunity to expand access to financial services, modernize payments infrastructure, and enhance U.S. competitiveness. At the same time, these partnerships require sustained and robust compliance frameworks and oversight, subject matter expertise, and targeted reform.”
Ms. Henrietta Thomas, Executive General Manager for Advocacy, Risk & Compliance, Xero, said, “The United States has thousands of banks and credit unions — including the community banks and credit unions that serve the majority of America's small businesses. The vast majority of those institutions cannot realistically build and maintain direct bilateral API integrations with every platform that serves their customers. Fintech data networks are how those institutions — and the small businesses that bank with them — participate in the modern financial ecosystem. Far from displacing community banks, these partnerships extend their reach: a small business banking with a community bank in rural Wisconsin can connect that account to Xero through Plaid just as seamlessly as one banking with a major national institution. The bank channel and the data-network channel are not competing routes. They are two parts of one system.”
Ms. Sheetal Parikh, General Counsel & Chief Compliance Officer, Treasury Prime, said, “Bank-fintech partnerships are not a niche or experimental phenomenon. They are reshaping how tens of millions of Americans access financial services every day. When a small business owner opens a digital account through a vertical labor marketplace platform, when an underbanked consumer receives a paycheck two days early through a fintech payroll app, or when a corporate treasury team moves funds instantly across a payment network, a regulated bank is almost always present, even when the bank’s name is not the one the customer first sees. The fintech delivers the experience. The bank provides the regulated foundation.”
Ms. Erica Khalili, Co-founder, Chief Legal & Risk Officer, Lead Bank, said, “For these consumers, the financial products made possible by responsible bank-fintech partnerships represent a meaningful path to mainstream credit access. First, these partnerships dramatically reduce the cost of reaching underserved sectors. Digital partnerships reduce customer acquisition costs from between $100 and $200 per customer down to between $5 and $35, which is what makes it economically viable to serve populations that larger institutions have concluded are not cost-effective to reach through traditional channels. Second, partnerships supporting fintech underwriting tools enable credit decisions based on a more complete picture of a borrower’s financial life. Tools incorporating bill payment history, bank account balance trends, and other behavioral data can allow lenders to extend credit to borrowers who do not appear in traditional credit scoring models. The regulatory environment should reflect the importance of bank-fintech partnerships to consumers. Individuals who depend on responsible bank-fintech partnerships for access to products and services to meet their financial needs benefit from a well calibrated regulatory framework that holds banks to rigorous standards while also enabling responsible innovation.”
