Reflecting on Key Challenges & Opportunities in 2022

Posted by Paul Davis on Dec 27, 2022 12:10:35 PM


Over the past year, SRM's experts have shared dozens of blogs, providing insight into industry-relevant topics.

We've covered a wide range of themes, including fintech trends, crypto, lending and deposit strategies, critical regulatory headwinds, and ESG programs.

Here is a brief look at five of our most-engaged blogs in 2022.

  1. Durbin Bill Aims to Fundamentally Change the Credit Market, Causing Disaster for Industry

Myron Schwarcz and Keith Ash quickly warned FIs about the risks of the proposed Credit Card Competition Action (CCCA) of 2022, a bill put forth by Sens. Richard Durbin (D-Ill.) and Roger Marshal (R-Kan.).

The CCCA reflects many principles Reg II applied to routing, intending to increase competition and reduce merchant costs. If this bill becomes law, it will have significant consequences for issuers and consumers, with the potential to upend credit access. It could also lead some issuers to dial back rewards and benefits.

There is significant opposition to the bill from many facets of the issuing community, and we have encouraged FIs to be vigilant and work with their associations to oppose it. The debate about the CCCA is far from over.

  1. Merger Scrutiny, Overdraft Fees & More: Banking Regulation in 2022

Regulation remains a big concern for FIs as agencies under the Biden Administration review existing practices and consider sweeping changes.

Earlier this year, Ben Mrva drew attention to several areas, including digital assets; Buy Now, Pay Later; and regulation.

The collapse of FTX and other crypto specialists has drawn more attention to regulating digital assets and cryptocurrencies specifically.

The Consumer Financial Protection Bureau waded into Buy Now, Pay Later with a statement comparing the practice to credit card issuance. The agency also assessed a sizeable fine on a regional bank for one of its past overdraft policies. It's safe to expect more intervention in 2023.

  1. OCC Order Serves as Blueprint for Banks, Credit Unions Working with Fintech

The Office of the Comptroller of the Currency (OCC) decided to emphasize oversight of Banking-as-a-Service (BaaS) platforms in 2022.

The regulator hit Blue Ridge Bankshares in Virginia with a written agreement that Paul Davis asserted could serve as a roadmap for other banks looking to offer BaaS services.

The OCC, among other things, ordered the bank to ramp up Bank Secrecy Act scrutiny of its fintech partnerships. The regulator also required a written report detailing suspicious activity monitoring, including high-risk customer activity tied to third-party fintech partners.

Acting Comptroller of the Currency, Michael Hsu, said during a subsequent speech that banks should posit a series of questions as they align with fintech, covering responsibility for shortcomings, restoring confidence after a misstep, and what happens when a fintech fails.

  1. BNPL: Why Banks and Credit Unions Need to Pay Attention

Last summer, we issued a comprehensive report to draw attention to BNPL programs. In it, we warned FIs that ignoring the product could eventually cede market share in other consumer products to fintechs.

Keith Ash wrote that banks and credit unions already have the compliance infrastructure to "identify and avoid the riskiest pitfalls" associated with BNPL. FIs could use the product to offset net interest margin pressure and lost fees from curtailed overdraft and nonsufficient funds (NSF) charges.

The CFPB eventually issued a report equating BNPL to credit cards, which we believe should provide even more comfort to experienced banks and credit unions interested in the product.

  1. Executive Order Cements Crypto's Role in Mainstream Banking

Outside of the FTX collapse, the biggest news tied to crypto was likely President Biden's executive order that required numerous agencies to evaluate the safety and uses of digital assets.

Our Digital Assets Advisory team, led by Larry Pruss, asserted that the order was a "constructive effort to build a framework as the US plays catch-up to other countries." They believe a streamlined approach would bring digital assets, including crypto, into mainstream financial services.

The White House, in a wide-ranging report, seemed to embrace digital assets and their potential for transparent, cost-efficient, and inclusive financial services. Research into a Central Bank Digital Currency (CBDC) will continue, and further oversight should be expected.

The Bottom Line

A variety of entities, including traditional FIs, fintechs and challenger banks, and regulators and lawmakers, kept us on our toes in 2022. We found ourselves constantly providing updates as situations evolved and circumstances changed.

The landscape will undoubtedly continue to shift in the coming year. Our expanding team of experts will monitor the topics shared here and stay on the lookout for new opportunities and pitfalls. We've got you covered heading into what is sure to be an eventful 2023!

Topics: Fintech, Vendor Contract Negotiation, Interchange, Buy Now Pay Later, Digital Assets, Overdraft, credit card competition act

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