Pub. 11 2020 Issue 1

www.wvbankers.org 28 West Virginia Banker Sarah Biller is the executive director of Vantage Ventures, an effort undertaken by the John Chambers School of Business and Economics at West Virginia University to apply the lessons of entrepreneurship and reach of emerging technologies to build vibrant economies. She is the co-founder of the first Fintech Sandbox, a Boston, Massachusetts-based not for profit providing vetted entrepreneurs access to high quality datasets and infrastructure, and Capital Market Exchange, a predictive analytics platformquantifying credit risk for institutional bond investors. She can be contacted at sarah.biller@mail.wvu.edu . By Sarah Biller, Vantage Ventures Fintech Sandbox L ast spring, Federal Reserve Gov- ernor Michelle Bowman began her remarks to fellow governors at the “Fed Family” luncheon at the Federal Reserve Bank of San Francisco with an important observation, “Not too long ago, commentators were looking at the impact of Fintech on [community] banking as a zero-sum game.” It was frequently said rapid technological advancements were at best competitive with the critical role of local banks in ensuring a well-func- tioning economy and, worse, at odds with our longstanding relationships and values. This perception was exacerbated by the posturing of some entrepreneurs who said they sought a path of disruption rather than collaboration. Today, the sentiment has shifted dra- matically across the industry, entre- preneurial and regulatory community. Governor Bowman reinforced this change by citing in her remarks the conclusions of the 2018 Conference of State Bank Supervisors survey that only about 10% of small banks now believe Fintech firms are current competitors. In parallel, the rise of partnerships with Fintech firms has been exponential. Nick Rosenberg, EVP of Metropolitan Commercial Bank, likened the intense interest from entrepreneurs to productively partner with the banking industry to the barber. He pragmatically reflected, “At the end of the day, you can cut your own hair, but nobody would stop seeing the barber, because they want it done properly,” Rosenberg said. “Banking is a heavily regulated mar- ket, and most people realize it takes a partner with experience.” None of us would be faulted to con- clude that this rise in collaboration has arrived just in time. A 2019 Cato Institute analysis found that 31% of the banks they spoke with see partnering with Fintech as part of their long-term strategy to support their customers where they are. The path to get there will require partnering at the core (pun intended): improving back and middle office processes, developing APIs or other layers on top of legacy systems to enable better customer experiences, if not mobile banking, data sharing or integration of new capabilities into core applications. For our banks to serve the next generation of West Virginians in a period where more likely than not the everyday customer now holds a smartphone or does their business accounting in the cloud — regardless of the size of the financial institution — it is critical we evolve our distribution models and product offerings to meet customer expectations in the digital realm. It may come as no surprise then that the security provided by a regulatory sand- box framework is a key tenet in the rising interest of banks to partner with Fintech entrepreneurs to meet these new oppor- tunities. Interestingly, 29% of respondents are “looking to collaborate with Fintechs and other technology providers to test new propositions in regulatory frameworks that encourage innovation.” In response, regulators from all sides of the Financial Services industry have taken steps to enable responsible innovation through a sandbox construct. For example, the Con- sumer Financial Protection Bureau (CFPB), whose role is to stop deceptive or unfair consumer finance practices, has proposed a sandbox. The head of the CFPB’s Office of Innovation, Paul Watkins, has said, “innova- tion is part of consumer protection — these things are not opposed.” The West Virginia Regulatory Fintech Sandbox is equally framed to enable respectful, regulatory sen- sitive partnerships between our banks and the entrepreneurial community. More im- portantly, it is intended to enable our banks to lead the country in smartly adopting technology solutions that strengthen our banking sector for generations to come. 