Fintechs often have an advantage over banks and credit unions. This is because fintechs are not banks or credit unions and do not have to abide by the same restrictive regulations. Yet fintechs can offer banking services by utilizing the services of partner banks.
With fewer restrictions, fintechs can apply the latest innovations without getting muddled down in time-consuming compliance and regulations. This puts credit unions in particular at a disadvantage.
If we look at the hierarchy of financial service innovation, fintechs are at the top, banks in the middle, and credit unions at the bottom. Credit unions usually do not have the budget of larger banks, which can make innovation difficult. And neither banks nor credit unions can keep up with the flood of venture capital money that fintechs seem to be constantly flush with. Throw in strict regulations, and credit unions are fighting with two hands tied behind their back.
If credit unions were more loosely regulated, they could better compete with fintechs. At least that is what Carlos Pacheco, CEO of the $1.4 billion Premier Members Credit Union in Boulder, Colo., recently said to a House subcommittee.
“It is important that Congress ensures laws are modernized to allow regulated financial institutions, such as credit unions, to keep up and compete with technological advances,” Pacheco said in testimony to the House Consumer Protection and Financial Institutions Subcommittee.
Pacheco noted that the NCUA has taken “a more conservative role” in allowing fintech opportunities for credit unions. This is exactly the opposite of what the Federal Deposit Insurance Corporation and the Comptroller of the Currency have been doing with chartering options.
“While some may characterize these chartering options as innovative, they can ultimately become loopholes, which invite unnecessary risk into the financial system and create an uneven playing field,” said Pacheco.