{ad_logo_primary}

Hello! Kiah here. Welcome to Fintech Takes Banking, my weekly newsletter where I highlight things I think are interesting or important for bankers and the surrounding environs.  

This is the last of my field reports from the unofficial banking conference circuit for 2025. Thank you to Phil Goldfeder and the American Fintech Council for asking me to be a part of a very fun, wonky policy summit.

If this isn’t enough nerdiness for you, I recently joined FinWise Bank’s EYE ON podcast to talk about fintech partnerships, bank charters and the noun/verb/gerund of bank and banking with host Sarah Grotta. Take a listen here! 📻

Was this email forwarded to you?

In 10, 15, 20 years, what will the financial services landscape look like?

The best way to predict the future is to make it, and some of the people who are building the financial future today were on stage at the American Fintech Council’s 2025 Policy Summit. 

This year’s summit agenda featured builders, bankers, industry folk, politicians and regulators. The latter included agency heads like Travis Hill, acting chair of the Federal Deposit Insurance Corp., Jonathan Gould, comptroller at the Office of the Comptroller of the Currency and Jonathan McKernan, under secretary for domestic finance at the U.S. Department of the Treasury. Their names on the agenda — and their predecessors’ absence from last year’s event — is one more piece of evidence that this regulatory regime intends to be different than the previous one. 

Beyond their presence, their messages were plainly deregulatory in nature and promoted innovation. McKernan discussed the role that innovation plays in growth and called growth a “moral imperative” for the country. And Hill acknowledged that many regulators have paid lip service to the importance of community banks, but in actuality, layered regulatory expectations on them that made their models unviable.

The question opening this newsletter, about the future of financial services, is one that McKernan surfaced in the opening session at the policy summit. He said those in government, including the U.S. Department of the Treasury, have a “unique opportunity … to define a strategic vision for what kind of financial system we want 10, 15, 20 years from now.” 

The Treasury Department could be a central coordinating mechanism that could convene regulatory agencies, define strategic priorities and potential reforms around issues like bank regulation and capital and then actually execute on those proposals. That would be a large contrast to what the chartered financial institution space had gotten used to in the last few years — a “regulation by reflex” approach, McKernan said.

Of course, the policy summit wasn’t the only place that was debating what the future of finance could look like. The same day, the House Financial Services Committee had a hearing on the future of deposit insurance; Congresswoman Young Kim, R-Calif., took time away from the hearing to speak at the policy summit. 

Also on Tuesday, the Federal Reserve Board released an Oct. 29 memo that outlined changes to bank supervision following publication of an article in The New York Times that highlighted the potential consequences critics see in response to these changes. Gov. Michael Barr shared his thoughts in a speech on Tuesday that he is officially Not A Fan of these changes (the speech is worth reading and may be worth looking back on in a couple of years).

If the bank regulators who spoke at AFC are successful in their endeavors, the regulatory and supervisory burden for community banks might be lessened in the coming years. Tailoring regulations for community banks is an “important government goal right now,” Hill said. At the FDIC, that could include clearer examiner standards and expectations, proposed changes to the community bank leverage ratio, changes to Bank Secrecy Act exams and obligations, and raising and indexing asset thresholds for audit and internal control requirements. 

Regulators may even be more open and collaborative about banks’ use of newer technology in their operations or in technology-driven business models. Gould said he is focused on changing the mindset at the OCC where “supervisors are looking for ways to facilitate their engagement” in the “new technologies that potentially banks are engaging in, or new forms of traditional financial intermediation activities,” while maintaining a safe and sound financial system. 

“It is an exciting time to be a bank regulator, which is not something I imagined to be possible before arriving here. And we are still very much in the early innings of change,” said Fed Gov. Stephen Miran a day later in a speech.

But I think it would be a mistake to conclude from these remarks that banking will be easier. I think this is an important dynamic to articulate: Direct regulatory burdens might be lessened for banks, but competitive pressures and consumer expectations are sure to increase. Regulators no longer want to be overly cautious of technology and innovation; they won’t act as the moat. There is no longer ideological opposition and skepticism to nonbank, technology-first entrants into the bank space; there now seems to be ideological openness. What does that mean for the future of banking? The future of banks? The future of community banks within that?

Take, for example, the “skinny master account” that was floated by Fed Gov. Christopher Waller in an October speech. McKernan said he “love[d]” the proposal, but that it would need to be carefully studied and, if formally proposed, implemented in “cautious, calibrated” steps that foster innovation in the banking and payment system. 

“This is one of these questions that will have compounding implications as we move forward. How we decide or don't decide — that implicitly is a decision of its own,” he said. “Fair to say, we're going to see a lot more developments on this topic in the coming months.”

One potential challenge or concern is how a skinny master account could impact liquidity in the financial institutions space. Institutions may have payment-related liabilities on their balance sheets — a natural advantage tied to their master accounts. A skinny master account could be one more pound of competitive pressure on these liabilities, on top of pressures posed from other institutions, money market funds and newer entrants like reward-paying stablecoins and crypto national trust banks. 

“Like it or not, technology is going to pressure that dynamic. … That is a profound change in market structure that we need to think about: the implications for consumers, for growth, for credit, maturity, liquidity, intermediation. It's not our job to stand in the way of change,” McKernan said. “But we need to make sure that these things are driven by fundamentals and not by the regulatory framework, and that we are thinking ahead as to what that means for the financial system.”

(Also: “Like it or not” is kind of a wild phrase to say, but it might be one of the more plainly stated truisms on that stage.)

But even outside of the challenges that come from navigating a more competitive and permissive regulatory environment, financial institutions are burdened by their own legacy technology and business models that are adapting slowly to digital channels and newer capabilities. 

Speaking of the future of finance, I was fortunate enough to share the stage at AFC as a moderator for a panel with four bankers involved in embedded finance: Jason Hardgrave, CEO of Darien, Connecticut-based DR Bank; Austin Strong, CEO of Ogden, Utah-based TAB Bank; Dub Sutherland, CEO of Pecos, Texas-based TransPecos Banks; and Matt Michaelis, chairman and CEO of Emprise Bank.

On my panel, they discussed how they changed their banks to meet the tech and compliance demands of the embedded finance space. Of the work needed to run virtual ledgers and build out artificial intelligence-driven capabilities that can better monitor and identify risks, while also managing the identity and talent shift needed to move from physical distribution channels and communities to digital ones. 

I have always believed that the embedded finance and banking as a service banks will be the first to need to do this, but they’re the harbingers. Increasingly, I believe all banks will need to follow in their footsteps. And as the CEOs on my panel will tell you: none of that is easy. 

So, back to McKernan’s statement and this newsletter’s opening question: What does the future of banking look like? Are there more banks in the future or less? Are there more de novos banks in 2035 than there are de novos in 2025? Will the United States have 500 fewer banks, 1,000 or more? Will more traditional commercial banks join the ranks of my esteemed panelists and grow through embedded finance and fintech partnerships, or will they grow through branches? Will I be using stablecoins instead of travel credit cards, and will my assets be tokenized instead of tangible?

I don’t know, and I couldn’t begin to make specific predictions (I would uhhh not write a newsletter if I could). I may not even know if I’ll know what the future looks like until it becomes my present. McKernan is thinking about these questions as well, even as he and the agency heads and lawmakers march us forward to that unknown destination. 

“Top of mind for me is trying to think more creatively about the financial system of the future. [That’s v]ery challenging because, of course, whatever we can imagine is not actually going to be where we end up,” he said. “Then working backwards from there, to think about what needs to change in the financial regulatory framework.”

FROM THE VAULT

What I’ve been reading, watching and listening to this week:

🐾 Absolutely obsessed with: “tiny dogs that can pull 100 times their weight.” This headline from The Wall Street Journal really says everything you need to know about this article, and there is a video.

🎁 More extremely specific link gift ideas: Loop earplugs that can be kept on keys for concerts and loud workout classes, because once the hair cells in our inner ears can’t heal or regenerate once damaged. A shoe dryer, so you never put your feet into damp shoes again. A Japanese bread lamp (exactly what it sounds like): a group of my friends gave this to our friend for her birthday, and it is both beautiful and absurd. Looks great on a bookshelf. None of these are affiliate links!

📉 Did you catch: my latest Bank Nerd Corner episode with Adam Mustafa, president and CEO of Invictus Analytics? We talked about the fall interest rate decisions from the Federal Open Market Committee and the implications for the end of quantitative tightening. Also, we briefly discussed the October activity in the standing repo facility, which has made the November shenanigans with the SRF more interesting to me. Brian Peters had a good write-up on Nov. 15 discussing the about-face.

Since it’s Thanksgiving 🦃  week, allow me to say how grateful I am to the banking and fintech community that provides me with story ideas, sources and readers. It is truly an honor, privilege and joy to write these newsletters for you or cross paths with the people who are building the future of financial services. And thanks to my colleague and friend, Alex, who asked me to consider this opportunity many months ago. 

As always, let me know your thoughts on this or on any other topic in the bank space!

– Kiah

Get your brand in front of 55,000+ financial services execs.

Workweek Media Inc. 
1023 Springdale Road, STE 9E
Austin, TX 78721

Want to ruin my day? Unsubscribe.