[Remarks by Jelena McWilliams, Chairman of the Federal Deposit Insurance Corp. at the Federal Reserve Bank of Philadelphia "Fintech and the New Financial Landscape" conference in Philadelphia on Nov. 13, 2018.]

 I am very pleased to join you today. I would like to thank President Patrick Harker for hosting this important event on the role of fintechs.

[caption id="attachment_7862" align="alignleft" width="150"] Jelena McWilliams[/caption]

Every time people mention the word "fintech," there is an aura of science fiction to it. And yet, technology in financial services is nothing new. ATMs and mobile banking are just a few examples of the innovative services that have transformed banking in modern times. They are ubiquitous now, but they were once revolutionary.

Banking has been the product of continuous innovation, going back to when the Medici Bank and its contemporaries improved the general ledger system through the development of the double entry system of tracking debits and credits or deposits and withdrawals. It is fair to say that innovation in banking has been around since at least the 15^th century.

What is different today is the speed and tremendous impact of technological innovation in and on banking, and the potential for technology to disrupt not just an institution or two, but banking as we know it. This is why it is crucial that policymakers and regulators understand the impact, scope, and consequences that are innate to what we have come to refer to as "fintechs."

 First, I will touch upon the role of innovation in expanding bank access because one of the primary benefactors of innovation are customers. Mobile and online banking, in particular, offer a level of control, access, and convenience that consumers have embraced.

If you think back a decade or two ago, very few among us could have imagined applying and being approved for a mortgage while relaxing at home in our pajamas. You would have to dress up (and dress well to impress the banker), and then show up at the bank with reams of paper to prove your creditworthiness. Not anymore. In fact, had my mortgage bankers seen what I looked like last time I applied for a loan, I am afraid I might have been denied.

Consumers have embraced these technological advances. Households are using mobile and online technology to open accounts, check account balances, transfer money between accounts, send money to others, and pay bills. And that is only the start. These transactions can be initiated from nearly any location and at any time. And to think that a few decades ago, travelers’ checks were all the rage...

A recent FDIC survey shows that the proportion of banked households that use mobile banking to access their accounts increased to 40.4 percent in 2017 from 23.2 percent in 2013. The share of banked households using online methods increased to 63 percent over the same time period.

New technology has proven able to improve the customer experience, lower transaction costs, and increase credit availability. It also offers a tremendous opportunity to expand access to the banking system.

Banks afford consumers many important benefits. These include consumer protections and wealth-building opportunities, and--near and dear to my heart--the protection provided by deposit insurance.

Still, millions of U.S. households do not experience these benefits because they are unbanked or underbanked.

This number is trending down, but the FDIC’s latest survey shows that more than 8 million households do not have any relationship with the banking system. Another 24.2 million households are underbanked, meaning they have a bank account but also meet some of their financial services needs outside of the banking system.

Unbanked and underbanked rates are higher among lower-income households, less-educated households, younger households, black and Hispanic households, working-age disabled households, and households with volatile income.

 Overcoming challenges to economic inclusion is vital to the FDIC’s mission to maintain public confidence in the financial system. Innovation plays a role here--not just in how products and services are delivered to consumers, but also in the development of products and services that meet their needs --particularly those of unbanked and underbanked households.

The FDIC’s recent survey looked at mobile and smartphone access among these households. Results suggest that mobile and internet banking offer important inroads into the banking system. More than eight-in-ten underbanked households – and nearly half of unbanked households--had access to a smartphone in 2017. In addition, nearly one-third of unbanked households--and 76 percent of underbanked households--report having internet access at home.

These channels enable unbanked and underbanked households to access banking services. It will be up to institutions to leverage technology and develop products to reach these consumers.

As banks develop strategies to bring more consumers into the banking system, innovations by non-banks are also introducing new products and services to meet consumer demands.

Marketplace lending and crowdfunding offer credit and funding without a bank’s involvement. Digital-only banks partner with institutions to offer retail services, such as deposit accounts, credit cards, and financial advice, predominately through smartphone apps. Peer-to-peer payment technology allows customers to transfer funds easily via the internet or using a phone. "Robo-advisors" use algorithms to provide investment advice.

To ensure that we are prepared to address the changing landscape in financial services, the FDIC has dedicated significant resources to identify and understand emerging technology. We are examining trends in retail financial markets, including marketplace and digital lending, machine learning and artificial intelligence, and big data. We are also considering developments in the wholesale financial markets, as well as blockchain and distributed ledger technology.

Technology is not simply transforming how consumers access financial services, it will also transform the business of banking – both in the way consumers interact with their financial institutions and the way banks do business.

• Data analytics will improve lending and help banks develop new approaches to assess credit risk.
• Technology will transform how banks identify customers and how they distinguish routine transactions from suspicious activity.
• Artificial intelligence and machine learning will provide better opportunities to manage risk – helping banks understand how their business plan can change to promote growth, while matching their appetite for risk.

Advancements in technology and data analytics will also change the way the FDIC and other regulators approach oversight, particularly in the areas of [Bank Secrecy Act and Anti Money Laundering] compliance and protecting consumers’ personal information.

While new technology can certainly introduce risk, it can also help regulators and institutions identify and mitigate risk sooner. And it will undoubtedly present opportunities to ease the burden of regulatory compliance. I assure you the FDIC will keep an open mind to the potential challenges and opportunities going forward.

 With the potential for so much change, the FDIC is obligated to fully understand emerging technology and its implications. We have already begun partnering with banks to understand how they are innovating. We are working to identify and hire subject matter experts to deepen our understanding of technological advancements.

A few weeks ago, I was asked at an event in New York City what I planned to do about fintech. I said that we planned to open up an Office of Innovation at the FDIC. By the time my plane landed in D.C., there were already a handful of articles about the FDIC rolling out its Office of Innovation, to the bemusement of my staffers. So, to the reporters in the room: I am taking a late train back to D.C. in case you are writing an article about the FDIC’s Office of Innovation.

All joking aside, it is fair to ask what the FDIC’s Office of Innovation will do once it is up and running. I have tasked my team with four fundamental questions as we set out on this journey:

• How can the FDIC provide a safe regulatory environment to promote the technological innovation that is already occurring?
• How can the FDIC promote technological development at our community banks with limited research and development funding to support independent efforts?
• What changes in policy--particularly in the areas of identity management, data quality and integrity, and data usage or analysis--must occur to support innovation while promoting safe and secure financial services and institutions?
• How can the FDIC transform--in terms of our technology, examination processes, and culture--to enhance the stability of the financial system, protect consumers, and reduce the compliance burden on our regulated institutions?

We will not answer these questions overnight--and certainly not before my train arrives in [Washington] D.C. tonight.

Adapting to advancements in banking technology is nothing new for the FDIC. Too often regulatory agencies play "catch up" with technological advances and their impact on regulated entities and consumers. The goal of our work at the FDIC is to reverse that trend through increased collaboration and partnership with the industry.

We will move forward together and help increase the velocity of transformation, while ensuring that banks are safe and sound and consumers sufficiently protected. As we ramp up to meet these new challenges, we have to keep in sight the potential benefits. Chief among them is that innovation can introduce safe and reliable products and services that will bring more Americans into the banking system.

It is my goal that the FDIC lay the foundation for this next chapter of banking, encouraging innovation that meets consumer demand, promotes healthy and successful banks, and reduces compliance burdens.

To all you innovators out there, get to work!

Freddie Mac has enhanced the Greenchoice Mortgages energy-efficient offerings, with broader financing options to help families with lower-incomes reduce utility costs through energy-saving home repairs and improvements.

“Older homes tend to be more energy inefficient, which may raise the cost of homeownership and may make them more difficult to maintain,” said Mike Dawson, vice president of single-family affordable lending strategy and policy at Freddie Mac. “Greenchoice Mortgages is part of a multiyear initiative to facilitate energy-saving improvements that could help families better sustain homeownership. Freddie Mac is committed to making mortgage lenders and real estate agents aware of these products and the value they bring to the housing market.”

A U.S. family spends a minimum of $2,200 each year on energy bills pdf—with nearly half of those expenses used for heating and cooling, according to the Department of Energy. However, utility expenses are not factored into traditional mortgage underwriting methods, meaning that the value of energy efficiency has been overlooked in first lien financing.

Greenchoice Mortgages will enable Freddie Mac to better assess mortgage loan performance between homes with energy-efficient enhancements and those without. Additional research by Freddie Mac will help develop and design valuation guidance and uniform data collection mechanisms, as well as underwriting guidelines to account for energy-efficient features.

Freddie Mac has built strategic alliances with organizations, such as the Rocky Mountain Institute, RESNET, the Institute for Market Transformation and the Department of Energy to increase understanding of energy-efficient features as well as to provide lenders, real estate professionals and borrowers with tools and education. This offering is the latest example of Freddie Mac’s ongoing initiative to address the demands of a fast-changing mortgage landscape, through education, innovation and efficiency, saving the borrowers of the future--and the lenders who serve them--time and money.

“With a deeper understanding of the value of energy efficiency, as well as an increased awareness of Freddie Mac’s solutions and underwriting requirements, lenders will have more opportunities to expand their green product offerings in the marketplace,” said Robert Sahadi, senior advisor to the Rocky Mountain Institute.

The initiative is part of Freddie Mac’s Duty to Serve plan, which focuses on supporting underserved markets by financing more rural and manufactured housing and preserving more affordable housing for homebuyers and renters nationwide. The plan includes increased loan purchases in these underserved markets as well as new products, ground-breaking research and expanded consumer education. The company is working with the mortgage industry, community nonprofits, all levels of government and other dedicated organizations to make a positive difference for households with very low to moderate incomes.

First Bank had deployed the servicing and risk platforms from Black Knight.

The bank implemented MSP, which supports first mortgages as well as home equity loans and lines of credit. First Bank is now using this comprehensive, unified platform to manage all of its mortgage servicing processes, including loan boarding, payment processing and default management.

“We’re looking forward to this system supporting First Bank’s strong commitment to compliance initiatives and customer support,” said Rob Chaney, president of loan operations for First Bank. “We believe the MSP system will provide our customers and employees with an exceptional servicing experience.”

Also, First Bank is using several servicing-focused analytic tools from Black Knight’s new Actionable Intelligence Platform. It’s engineered to help generate and protect revenue, improve efficiency and performance, and support vital compliance initiatives by putting the right information in front of the right people at the right time.

As a result, everyone--at every level of the enterprise--knows what their next step should be, based upon thorough and expert analysis of the data at hand. First Bank will use the Actionable platform to help monitor portfolios and receive real-time alerts on critical lien-related indicators, and provide insight into monthly prepayment and delinquency trends

“Our MSP system will elevate First Bank’s ability to enhance the customer experience with industry-leading capabilities and actionable analytics,” said Joe Nackashi, president of Black Knight. “[MSP offers] significant advantages to First Bank’s servicing operations and provide both the proven technology and insightful actions to drive greater operational excellence.”

FirstBank operates in Colorado, Arizona and California, and is the largest locally owned banking organization in Colorado, serving more than 750,000 customers.

Redfin and Notarize are working together to provide the capability to close a mortgage loan online. Redfin Mortgage completed its first digital home closing November 2 for a Texas homebuyer and continues to schedule more digital closings as consumers learn about this option.

"Redfin is using technology to improve the entire home buying process from initial home search, to mortgage application and approval, to purchasing and now closing on a home purchase," said Jason Bateman, head of Redfin Mortgage. "For homebuyers, this means you can choose the time and place to sign your documents, whether that's from the comfort of your couch or on your phone in the moving truck outside your new home."

Online closings are completed through Title Forward, Redfin's title and settlement company, and Redfin Mortgage. Notarize is a digital platform that provides a convenient, secure, scalable solution for homebuyers, agents, lenders, title agents and secondary market investors. All participants can review, sign and collaborate online to process transactions in a completely paperless format, when and where it works for them.

"Our closing solution is a natural fit for Redfin because their customers are accustomed to a digital, mobile product," said Pat Kinsel, founder and CEO of Notarize. "No longer do customers have to leave work, find a babysitter, coordinate schedules or travel to the closing. Our technology integrates to seamlessly to deliver an easy, intuitive experience, so that buyers can get on to moving and unpacking boxes in their new home."

Notarize was the first provider to introduce a scalable platform for completely digital mortgage closings, completing hundreds of real-estate transactions since its launch last year, and growing by more than 50 percent each month.