FRB Governor Michelle Bowman Describes Impact of Payment System Innovation on Community Banks
Federal Reserve Board ("FRB") Governor Michelle W. Bowman highlighted proposals to modernize payment services for community banks.
In a speech at the 2020 Banking Outlook Conference, Ms. Bowman expressed support for (i) adopting an additional same-day window to the automated clearinghouse ("ACH"), which will allow banks outside of the eastern time zone to have more time for same-day ACH services, (ii) the planned implementation of the FedNow Service, which will provide community banks with a long-term solution to meeting the demand for faster payment services by their customers and (iii) encouraging community banks to partner with FinTech firms to offer checking accounts online.
Third-Party Service Providers
To help reduce the burden for community banks that rely on outside service providers for new technologies and payment services, Ms. Bowman recommended that the FRB:
- provide guidance on how to conduct due diligence when searching for a third-party provider;
- support partnerships between community banks and FinTech firms with successful track records;
- allow banks that use the same third-party service provider to collaborate on resources in order to avoid duplicating each other's work;
- issue consistent guidance on third-party relationships across all banking agencies and consider adopting the OCC's outsourcing guidance;
- make FRB regulatory conduct exam results of third-party service providers available to all banks, rather than just to the banks that are already clients of the service provider; and
- tailor the expectations of community banks with assets under $1 billion based on their "size, risk, complexity, and capacity."