New technology benefits, challenges – and impact on ‘economic inclusion’ – for banking cited in opening of FDIC-sponsored forum

New technologies offer potential benefits to both banks and their customers – but can also lead to additional challenges, including those related to privacy and data security, the chairman of the federal deposit insurance agency said Monday in opening a one-day forum on the issue.

Federal Deposit Insurance Corp. (FDIC) Chairman Martin Gruenberg also said Monday that in addition to offering benefits such as reduced transaction costs, increase credit availability, better customer experiences, better operational efficiency, and increased access to “mainstream banking,” new technologies can also help enhance “economic inclusion” for bank customers.

Gruenberg made the remarks in opening the agency’s Forum on the Use of Technology in the Business of Banking, held at the FDIC facility in Arlington, Va.

But the FDIC chairman also pointed out that new challenges arise with the use of new technology, “which can be difficult to anticipate,” he added. Those include challenges related to cybersecurity, Bank Secrecy Act (BSA) compliance and anti-money laundering (AML) concerns, consumer protection issues, and privacy and data security.

Gruenberg noted those challenges come in areas that all financials must manage, “but these could be amplified as banks and others adopt or expand new technologies,” he said.

In other comments, the FDIC leader warned that new technologies generate potential competitors to traditional banks.

“This non-bank competition arising from innovations is not new,” he said. “Nonbank financial companies have competed alongside banks for decades, and banks will need to continue to adapt to changes in the competitive landscape – regardless of whether those changes come from technology-focused companies or from other non-bank financial firms.”

He told the forum participants that his agency is monitoring trends, opportunities and risks associated with emerging technologies. The agency is also, he said, evaluating impacts on banking, general safety and soundness, deposit insurance, financial reporting, economic inclusion, and consumer protection.

“This work informs our supervisory strategy for responding to opportunities and risks presented by the use of emerging technologies to supervised institutions,” he said.

Gruenberg also told the group that the federal deposit insurer has particular interest in using technology to enhance “economic inclusion” (or helping customers have access to financial services).

“In the United States, a relationship with an insured depository institution continues to be essential to households’ full participation in the economy. Just as graduating from school and getting a first job are milestones, a bank account, too, is a key step on the road to financial well-being,” he said.

He said a “basic” such as an insured deposit account gives households the ability to safely deposit and store income, make payments toward monthly obligations such as rent or a mortgage, and engage in buying groceries or more durable household goods through daily transactions.

“Bank accounts also come with a host of protections, such as those concerning electronic funds transfers and other rules that limit consumer liability for unauthorized transfers,” he said.

He also asserted that a banking relationship helps families save, establish credit histories, and obtain credit on favorable terms. “When delivered with attention to the needs of consumers, this bundle of products and services can help families realize their goals and, in so doing, strengthen their confidence in the banking system, which goes to the core mission of the FDIC,” he said. “So, we are very interested in hearing about methods to leverage technology to increase access to banking services.”

Remarks by Martin J. Gruenberg, Chairman, FDIC at the Forum on the Use of Technology in the Business of Banking