FRIDAY JUNE 4, 2021 VOL. 186 No. 106 AMERICANBANKER.COM Follow us on Twitter @AmerBanker

streamline payment acceptance and cut costs by replacing manual processes with Money out the door automated ones. Page 6 Ally ditches overdraft fees, Financial institutions' lending portfolios are expected to 6 citing consumer harm take a steadily bigger hit from synthetic identity fraud over The online bank’s decision to stop charging the next few years the fees is part of a broader reassessment across the industry. Ally had waived See story on page 2 overdraft fees early in the pandemic and has historically been less reliant on them than Unsecured credit losses due to SIF many other institutions. Page 7

$2.5B OCC not reviewing Trump-era ‘valid when $2.4B 7 $2B $2.2B made’ rule, Hsu says $2.0B The acting comptroller of the currency, $1.8B appointed by the Biden administration, $1.5B $1.6B signaled that the regulation meant to provide legal clarity about the secondary market is $1B safe for the time being. Page 7

$500M First Bancorp buying 2019 2020* 2021* 2022*2023* 8 Select Bancorp to bulk up in North Carolina Source: Aite Group (*projected) Acquiring its local rival would give First Bank a commanding presence in Fayetteville and add to its presence in Raleigh, Charlotte and Wilmington. Page 8 Investors flock to bank dailybriefing 3 , anticipating  fixes higher interest rates 9 ordered after hacked How Fed aims to help banks Rising inflation could lead to a rate hike, customers ‘go hungry’ 1 spot synthetic identity fraud bolstering lenders’ profits in 2022. Improved Bank of America was ordered by a judge Scams in which a real person’s information credit quality and an economic rebound are to change its practices after thousands of is used to create fictitious businesses or also fueling investment in the sector. Page 4 unemployed California customers receiving individuals have led to $6 billion in credit public benefits complained that when their losses. The Federal Reserve has developed Where banks are eyeing prepaid debit cards were hacked, the bank a standard definition for synthetic identity 4 profits in the green economy made matters worse by treating them like fraud so lenders can distinguish it from While the industry is facing greater pressure criminals. Page 8 traditional identity theft. to scrutinize the environmental risks (See chart above.) Page 2 associated with its financing activities, many The era of virtual board banks also sense opportunities in climate 10 meetings needs to end Fed’s Beige Book reports change. Here are some examples. Page 5 High-tech videoconferencing is no 2 pickup in recovery, price replacement for high-touch in-person pressures How open banking meetings. Yet some bank directors who The pace of the U.S. recovery picked up 5 is transforming financial are vaccinated remain hesitant to return to somewhat in the past two months, sparking services in Europe boardrooms, Kenneth H. Thomas writes in price pressures as businesses contended EU regulation permits digital connections BankThink.Page 9 with worker scarcity and rising costs, the between banks and fintechs, creating ways Federal Reserve said. Page 3 for pension providers and brokerages to FRIDAY JUNE 4, 2021 AMERICANBANKER.COM PAGE 2

identity fraud began to catch the attention of windmills, you are collectively not going to do IDENTITY THEFT Fed officials in 2018, said Jim Cunha, senior a very good job at combating the problem.” vice president for secure payments at the Some of the more recent high-profile cases Federal Reserve Bank of Boston. of synthetic identity fraud involved bad actors How Fed aims “Synthetic identity came in as something creating fake businesses to steal from the PPP that appeared to be growing dramatically,” he and other government-backed programs. to help banks said. “We felt like this was an area where the In November, the Department of Justice Fed, as a leader catalyst, could provide value.” announced indictments related to an alleged Although there is scant and varying data Los Angeles fraud ring. Prosecutors said spot synthetic on synthetic identity fraud, the associated defendants used fake, stolen, or synthetic losses for banks are generally expected to identities as part of a scheme to seek identity fraud climb. Aite Group has estimated that by 2023, COVID-19 relief through the Small Business synthetic identity fraud could account for Administration’s Economic Injury Disaster By Hannah Lang $2.42 billion in unsecured credit losses, up Loan program and the PPP. June 02, 2021 from approximately $1.63 billion in 2019. In August, federal prosecutors in Florida WASHINGTON — The Federal Reserve Officials said part of the Fed’s aim is to charged two men with a bank fraud conspiracy has embarked on a multipronged effort to highlight the risk of fraudsters creating fake for allegedly using about 700 synthetic alert financial institutions about the threat businesses, instead of just fake individuals, identities to steal more than $3 million in PPP of synthetic identity fraud, which has already that then try to apply for credit. relief. Last month, ProPublica reported on cost lenders an estimated $6 billion in losses “Our definition is sort of precise, in that it PPP loans that were made by Kabbage and and drained resources from the Paycheck talks about personally identifiable information, other lenders to fake businesses, including Protection Program. and it talks about an individual and an entity,” nonexistent farms. In all, the investigative Some analysts say fraud committed by said Mike Timoney, vice president of secure news organization found that 378 small loans creating fake personas is now the fastest- payments at the Boston Fed. “Most of what we were made to bogus businesses, totaling $7 growing crime in the U.S. However, defining saw in original definitions was really focused million. and identifying synthetic identity fraud has around an identity, but it really didn’t take into Yet the Fed has noted challenges in tracking proved challenging for risk managers and the side that it could be a business or an entity synthetic identity fraud because in some cases law enforcement that historically have been that actually has a fake identity as well.” it is hard to tell it apart from more standard more focused on stopping fraud from more The Fed’s definition helped move synthetic identity theft. traditional identity theft. identity fraud from an “amorphous concept” “It is often difficult to differentiate synthetic After publishing three white papers on to something concrete, said Jason Kratovil, identity payments fraud from traditional the topic, the Fed in September launched a the executive director of the Consumer First identity payments fraud and legitimate focus group of 12 industry experts to agree Coalition. financial activities,” the Fed said in a July 2019 on a standard definition for synthetic identity “Even those who knew about it and were paper. “As a result, subject matter experts fraud. In April, the group defined it as the use paying attention to it and trying to do things indicate that the number and volume of of a combination of personally identifiable to stop it were not defining and approaching synthetic identities in financial portfolios are information to fabricate a person or entity in it and looking for it the same way,” he said. underestimated.” order to commit a dishonest act for personal “If everybody is tilting at slightly different A paper released last year discussed or financial gain. The idea is to focus bankers’ efforts on flagging instances of fraud that are distinct Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 from the more garden-variety instances of Phone 212-803-8200 AmericanBanker.com when a person steals another’s identity. One common approach by synthetic fraudsters Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 is to create a fake persona with a made-up Managing Editor Dean Anason 770.621.9935 name and address that are combined with Reporters/Producers someone’s actual social security number, Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 often stolen through a data breach. Washington Bureau Chief Joe Adler 571.403.3832 “It’s a fantastic first step,” Greg Woolf, a Executive Editor, Technology Miriam Cross 571.403.3834 member of the working group and CEO of the Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 fraud detection software provider FiVerity, said BankThink Editor Rachel Witkowski 571.403.3857 of the standardized effort to define synthetic John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 identity fraud. “The definition is a start, and as Hannah Lang 571.403.3855 this unfolds, the Fed is looking to educate the Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 market and implement this in a way that will Digital Managing Editor help the financial industry.” Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 Growth in criminals committing synthetic

For up to date and complete coverage go to AmericanBanker.com FRIDAY JUNE 4, 2021 AMERICANBANKER.COM PAGE 3 the advantages of developing a common the system to perform real-time checks of a Reserve said. definition for synthetic identity fraud. customer’s social security number, name and “The national economy expanded at a “We recently spoke with a credit union date of birth, which Kratovil argues could be moderate pace from early April to late May, a about its machine learning tool developed for useful in combating synthetic identity fraud. somewhat faster rate than the prior reporting fraud detection. In beta tests, the tool flagged “As the industry has digitized, the SSA’s period,” the U.S. central bank said in its approximately 85% of credit applications original paper-based system to verify SSNs Beige Book survey released on Wednesday. originating from synthetic identities,” the and help combat synthetic identity fraud did “Overall price pressures increased further paper said. “While this demonstrates that not,” he said. “I think an important role that since the last report. Selling prices increased detection models can successfully be the Fed can play is raising awareness of the moderately, while input costs rose more adapted to synthetics, fraud industry experts system that SSA is building.” briskly.” advise that these detection models could be At the same time, the Fed has to be sure that The report was based on information improved if they utilize a standard definition its work on synthetic identity fraud doesn’t collected by the Fed’s 12 regional banks on or of synthetic identity fraud. This would allow have the counterproductive effect of arming before May 25 and compiled by the Cleveland for broader comparison and analysis of the bad actors with information that could help branch. data and results.” them evade detection, said Kratovil. Now that the Fed’s working group has “You can’t give away trade secrets that ‘Hot summer’ developed a standard definition, the next would give fraudsters a peek inside the tent, Diane Swonk, chief economist at Grant phase is to get the word out, observers said. but you can certainly help arm financial Thornton, wrote in a tweet that the survey “It’s just a starting point for the Fed, from institutions with the knowledge and strategies shows demand continues to improve faster what I’m hearing and they’ve certainly to help them begin to identify and combat than supply across the board, which is reached back out to us to say, [the] next step is synthetic identity fraud in their own houses,” showing up in prices. “It’s going to be a hot kind of bringing this to market so they can get he said. summer for prices and wages — real test is that consistency,” said Woolf. While he believes the Fed has made whether we see shortages persist only 4Q,” The Fed is currently undertaking new work progress since it began its work on synthetic she said. to offer educational materials to the banking identity fraud in 2018, there is a recognition Fed officials are considering how quickly industry that firms can use both to educate that the work is only just beginning, Timoney to trim monetary policy support with an employees and identify synthetic identity said. increased pace of vaccinations brightening fraud in their own portfolios, said Timoney. “Even though I think we’ve made huge the U.S. outlook. The Federal Open Market “We’re really trying to bring together a strides, I think there’s a lot more work to be Committee will update its quarterly forecasts series of materials that can help educate the done,” he said. “That’s why we’re going to keep for interest rates, growth, unemployment and industry and help protect the industry, and doing what we’re doing to try and make sure inflation at its June 15-16 gathering. that’s something we’ve just kicked off,” he said, people are aware of it.” The Beige Book reported that some adding that the Fed hopes to ultimately put businesses were able to take advantage of together a package later this year to “help the stronger demand to pass along higher input industry fight synthetic” identity fraud. ECONOMY costs to customers. In addition to exposing banks to credit “Looking forward, contacts anticipate losses, Timoney said synthetic identity fraud facing cost increases and charging higher can also pose reputational risks for firms as Fed’s Beige prices in coming months,” the survey said. well, especially if fraudsters are using synthetic Several policy makers including Vice Chair identities to engage in other illegal activities. Book reports Richard Clarida have said central bankers may “Anytime a bank has accounts on their be able to begin discussing the appropriate books that are being used for illegal purposes, timing of scaling back their bond-buying there’s a potential for a reputational impact pickup in program at upcoming policy meetings. there,” he said. Patrick Harker, president of the Philadelphia Kratovil hopes that as part of its work on recovery, Fed, said earlier on Wednesday that officials synthetic identity fraud, the Fed can also help should get that debate underway. to raise awareness of a new system the Social Security Administration is building as part of price Supply disruptions a requirement in S. 2155, the 2018 regulatory The report cited multiple anecdotes of relief bill. pressures companies struggling with higher input The SSA has long had a system that has prices, supply chain disruptions and a allowed financial institutions to verify social By Bloomberg News shortage of workers. In St. Louis, for example, security numbers, but that system is less useful June 02, 2021 a group of restaurants held a job fair to fill for synthetic identity theft since fraudsters The pace of the U.S. recovery picked up more than 100 positions — but only a dozen use existing social security numbers to open somewhat in the past two months, sparking applicants showed up. accounts. price pressures as businesses contended with Leisure and hospitality firms saw increased The 2018 law required the agency to update worker scarcity and rising costs, the Federal business as vaccinated Americans sought to

For up to date and complete coverage go to AmericanBanker.com FRIDAY JUNE 4, 2021 AMERICANBANKER.COM PAGE 4 travel more frequently. In New York, hotel benefit. When rates rise, most sectors primarily of loan defaults amid the pandemic never occupancy topped 50% for the first time since see only higher borrowing costs. For banks, materialized, enabling South State, a unit of COVID-19 began and nightly room rates however, higher rates make lending more South State Corp., and dozens of others to rose, while museums and restaurants saw a profitable. release loan-loss reserves. When banks do this, rebound. “Inflation could be a real issue — and the the money falls to their bottom lines. The FOMC has committed to only begin Fed may have to act sooner on rates than Nichols also said loan demand is beginning scaling back the $120 billion monthly it currently signals,” said Robert Bolton, to pick up, as consumers travel and borrow pace of its asset purchases after there’s president of the bank investor Iron Bay Capital. to make big-ticket purchases, and businesses “substantial further progress” on inflation “Plenty of investors clearly think that’s a strong draw on credit lines to invest in growth as the and employment. possibility.” economy gains steam. U.S. central bankers will get a fresh update Investors have pumped more than $30 Those factors collectively create a sound on the status of the labor market on Friday. billion into financial stocks this year. The foundation for earnings growth. With rising The May employment report is expected prospect of higher rates comes on top of banks’ profits, banks could increase dividends or buy to show the addition of 653,000 new jobs, robust credit quality, higher first-quarter back shares, benefiting investors. “Things are with the unemployment rate dropping to profits and broad expectations that banks will setting up nicely,” Nichols said. 5.9%, according to a Bloomberg survey of emerge from the pandemic in good financial Analysts at Deutsche Bank said that while economists. health. markets are forward-looking, investors have U.S. consumer prices showed hotter-than- For now, Federal Reserve policymakers not yet priced in the potential for strong expected inflationary pressures in April. maintain a posture of keeping rates low through economic growth into 2023 and 2024. That Fed officials have largely written them off as next year. Fed officials argue a rise in inflation could give banks and their clients another owing to transitory factors associated with will be temporary and prices will settle down bump; analysts said bank stocks could rise supply-chain bottlenecks and the reopening after the economy absorbs a burst of demand another 25% to 50%. of service industries as the pandemic recedes. that was pent up during the pandemic. Jerry Plush, CEO of Amerant Bancorp in The Fed’s forecasts released in March But inflationary pressures are mounting Coral Gables, Florida, sees a long runway showed officials don’t expect to raise interest quickly. U.S. consumer prices in April were up for earnings growth. The $7.7 billion-asset rates from near zero before the end of 2023, by 3.6% from a year earlier. That was the biggest bank operates in both South Florida and the even as they sharply upgraded projections for jump since 2008 and put inflation well above greater Houston area. Both areas were early to growth and employment this year. the Fed’s targeted 2% level, the federal Bureau reopen businesses during the pandemic, and of Economic Analysis said last week. economic activity has surged. Loan demand Anecdotally, executives at the national big- is building. As other parts of the country catch BANK STOCKS box chain Costco said they saw accelerating up, demand could rise nationally, he said. prices across a range of products in recent “We’re seeing the recovery in full force months, from shipping containers to food. where we are,” Plush said. Investors “Inflationary factors abound,” CFO Richard He cautioned, however, that discussions Galanti said on the company’s earnings call last among lawmakers in Washington about raising flock to week. “These include higher labor costs, higher corporate taxes worry bankers. freight costs, higher transportation demand.” Higher tax bills would eat into the profits Investors are betting that inflation will persist of both banks and their commercial clients. bank stocks, until the Fed lifts rates to prevent runaway President Biden, a Democrat, last week laid price increases, said Michael Matousek, head out a plan to raise the corporate tax rate to 28% anticipating trader at U.S. Global Investors. “Higher rates from 21%. Wealthy Americans would also pay are inevitable,” feuling investor interest in more in individual taxes. banks, he said. Kevin Cummings, chairman and CEO of higher S&P Global’s index of small-cap banks was Investors Bancorp in Short Hills, New Jersey, up 32% on the year through the end of May. agreed that the specter of higher taxes lurks as interest rates Its large-cap banks index was ahead 36%. If a serious potential headwind. The pandemic, sustained, both could post record years relative too, remains a wild card. He is confident in the By Jim Dobbs to the broad S&P 500 index, which was up 12% effectiveness of vaccines, but “we still don’t June 02, 2021 through the end of last month. know for sure that this thing is behind us,” he Bank stocks are booming, reflecting Banks stocks declined about 15% in 2020. said. investors’ ambitious outlook for lenders. “Higher rates are good for banks overall,” Government stimulus and loan forbearance The threat of inflation looms as the U.S. said Chris Nichols, head of capital markets programs also are ending this year. This could economy heats up amid the pandemic at the $37.8 billion-asset South State Bank in shock individual households and some small recovery. With that risk comes increased Winter Haven, Florida. “Bank stocks are on a businesses, and that could result in more likelihood of higher interest rates in 2022 — to tear as a result.” missed loan payments. A choppy recovery tamp down spending and curb price increases Nichols said banks’ underlying could also curb loan demand. — and banks are uniquely positioned to fundamentals are solid, too. A feared wave Still, Cummings said, the outlook at the

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$25.8 billion-asset Investors is brightening. “In addition, all companies will need capital we serve,” Smith said. With credit quality solid, loan demand and advice to help them innovate, evolve KeyCorp is another bank that is scaling expected to rise this year and higher rates more and become more efficient while staying up its renewable energy finance business. likely to follow next year, momentum for banks competitive in a changing world.” The Cleveland-based company recently is mounting. Here are some examples of how banks are added a new team of investment bankers “We’re going to have a strong third quarter capitalizing on the transition to a greener who specialize in green energy to its capital and fourth quarter, and I think things will economy. markets division. continue to improve,” Cummings said. “Higher While the $176.2 billion-asset Key has rates, which I think is something that almost Issuing green bonds and sustainability been financing renewable energy for over a has to happen by next year, would add to gains bonds decade, executives say that those investments we are already making this year.” Green bonds, which enable banks to have been gathering more momentum lately, finance environmentally friendly projects, driven by a number of factors. have become more popular as the threat from “The cost of power generation is continuing CLIMATE CHANGE climate change has intensified. to come down, and renewables are now “There’s a huge and growing interest in competitive with any other power generating sustainable investment among financial option,” said Randy Paine, president of Key Where banks institutions and investors around the world,” Institutional Bank in the company’s capital Treasury Secretary Janet Yellen said in April markets division. “You also have the new are eyeing remarks. administration under President Biden that JPMorgan’s inaugural green bond issuance we believe will be targeting investment and last fall, which totaled $1 billion, went to helping to further increase the competitiveness profits in finance projects that included green buildings of renewables vis a vis other power sources. and renewable energy. Bank of America and We believe the momentum is only going to the green Citigroup have also issued green bonds in increase.” recent years. In a related development, large and midsize Offering green deposits to corporate economy banks have also been issuing sustainability customers bonds, the proceeds of which go to finance a While pro-environment capital markets By Laura Alix combination of green and social projects. Last activities have become more common in June 02, 2021 month, announced a $1 billion recent years, green deposits are still somewhat Even before banks were facing pressure sustainability bond, with half of the proceeds rarer. But that is starting to change. from the Biden administration to start slated to go to renewable energy projects and MUFG Union Bank recently launched a accounting for the risks associated with the other half reserved for affordable housing commercial deposit account for corporate climate change, many were embracing the and projects that advance socioeconomic clients that want to see their cash loaned out opportunities associated with the transition to equality. for sustainable projects. a low-carbon economy. Corporate cash placed in the firm’s green Efforts to combat climate change are giving Ramping up renewables deposit product will be loaned out only to rise to new technologies, upgrades to existing Banks are angling for a larger role in projects that meet certain environmental infrastructure and new jobs. They are spurring financing renewable energy, both for and social criteria, which could include new demand for specialized financing, capital corporate clients who produce fossil fuel renewable energy, wastewater management markets advice and even retail banking energy and for those that consume it. or sustainable packaging development, products. Bankers have also made clear Regions Financial in Birmingham, according to the U.S. subsidiary of the Japanese that their preference is to work with carbon- Alabama, for example, has established an conglomerate Mitsubishi UFJ Financial Group. heavy clients to help them reduce their own expertise in financing solar energy, and it’s More recently, HSBC USA announced carbon footprints, rather than abandon those now looking to grow that business. The $147 its own green deposit product for corporate customers. billion-asset bank has financed solar projects clients. HSBC said the product was part of its In his annual letter to shareholders, in rural areas and worked with companies, own commitment to achieve net-zero carbon JPMorgan Chase CEO Jamie Dimon called including some oil and gas firms, to help them emissions from its financing activities by 2050. climate change “a critical issue of our time” invest in renewable energy. Though few large regional banks currently and stressed that banks should be part of the Regions’ solar tax equity finance team offer similar products, some bankers believe solution. has funded around 50 projects in the past there’s an unmet demand for basic deposits “There’s huge opportunity in sustainable five years, according to Ronnie Smith, the with a green purpose. and low-carbon technologies and businesses. company’s head of corporate banking. More “We have a large number of clients already While many of these technologies and recently, the bank has also gotten into wind interested, and I think having something like companies are mature, many more are just generation, he said. this would be attractive to prospective clients,” getting started — and more will need to be “It does represent good demand, good need said Olu Adebiyi, a managing director for created in the coming decades,” he wrote. and the right thing to do for the communities MUFG Union Bank.

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Helping consumers monitor their envi- are lower than card payments because these ronmental impact APIs services don’t involve the card networks’ rails. Though there are currently few According to the U.K.’s Open Banking environmentally minded retail banking Implementation Entity, over 1 million open products in the U.S., Bank of the West is taking How open banking payments occurred in the U.K. in a stab at the concept. February 2021, compared with 4 million for the Last year, the $98 billion-asset bank banking is whole of 2020. unveiled a retail checking account called its 1% Since introducing payments initiation, for the Planet account. It’s so named because Freetrade has seen a 70% reduction in the San Francisco company will devote 1% of transforming unallocated deposits and an 18% increase in net revenues from the account to nonprofit the average deposit value, Roberts said. Now organizations that focus on environmental financial 70% of Freetrade’s investors choose open issues. banking payments as their funding option; What’s unique about the account is a manual bank transfers have fallen from 90% of carbon-tracking tool embedded into the services in total deposits to 25%, and card payments to 5%. mobile app, which aims to give consumers Many other U.K. and European companies an idea of the environmental impact of their Europe are finding that they can improve customer purchases. That tool relies on the Åland Index, service and cut costs by taking payments a cloud-based program developed by the By Robin Arnfield directly and immediately from customers’ Swedish fintech firm Doconomy. June 01, 2021 bank accounts. The tool calculates the carbon impact of a Before it implemented an open banking- Open banking payments adoption is given transaction, using the merchant code based method for funding brokerage accounts, being facilitated by fintechs that provide and purchase amount. Bank of the West also Freetrade allowed its customers to move funds standardized connectivity to bank interfaces, offers a debit card made of compostable manually — and oftentimes, had no idea freeing their clients from connecting directly plastic to be paired with the account. where those funds were supposed to go. with multiple bank APIs which may be of “At one point, up to 10% of manual deposits varying quality. Vendors include the U.K.’s Building a bank around combating were unallocated, and we had to return the TrueLayer, Yapily and Token; Sweden’s Tink; climate change funds that we couldn’t match,” said Damon and the U.S.’s Plaid. A community bank founded exclusively to Roberts, head of product at the U.K.-based “I think payments initiation will become the address climate change opened its doors on online brokerage. “People were contacting primary payments rail in the U.K. and Europe Tuesday in St. Petersburg, Florida. us to find out where their money was, and in the next three to five years,” said Keith Climate First Bank received conditional we needed additional customer support for Grose, head of international at Plaid. Payments approval from the Federal Deposit Insurance unallocated accounts. The problem with initiation is growing more than 50% a month in Corp. in March. It ultimately raised over $42 manual transfers was only going to get worse the U.K., he said. million in capital, more than double the $17 as we scaled up.” Penfold, a U.K.-based provider of pension million that the FDIC required in order to Customers had to switch between their services for the self-employed, is also using open. online banking app and the Freetrade app TrueLayer’s API. “For many people, managing Founder Ken LaRoe said that he built the while copying and pasting account details and pensions is complicated and slow,” said bank’s products around ways to tackle the their Freetrade customer reference. Freetrade Pete Hykin, a Penfold co-founder. “It takes climate crisis. Climate First Bank will, for also supported debit cards, but deemed that a week to set up a direct debit to pay your example, offer financing for rooftop solar, too expensive to be the company’s primary pension contributions, and amending your regenerative agriculture and building retrofits. funding option, Roberts said. contributions is a massive upheaval.” Climate First is the third bank LaRoe has In September 2020, Freetrade added a third Hykin said that by integrating with started, and the second with an environmental option: payments initiation through open TrueLayer, customers can link their bank focus. In a February interview, LaRoe spoke banking. accounts to their Penfold pension and initiate about the shift in public opinion around Using technology from TrueLayer, Freetrade transfers via open banking, with funds arriving climate change since 2009, when he formed now allows customers to move funds from their instantly through the U.K.’s Faster Payments First Green Bank. bank accounts without leaving Freetrade’s app. system. “Then it was really not mainstream or Main “Customers can make payments quickly, and “Penfold customers can now pause, adjust Street,” he said. “The response I’ve gotten from since the payment parameters are all there, or top up their pension payment whenever the regulators this time is, ‘This is the coolest they are allocated automatically,” Roberts said. they like, without having to contact their thing ever.’ And the community has rallied. This process is enabled by open banking, banks about their direct debits,” he said. We get so much communication from people which allows third parties to access customer They also don’t need to set up their pension saying, I’m going to bank with you the minute bank accounts and data on a consent basis contributions weeks in advance of the end of you open. I’ve got investors coming from to provide additional financial services. the U.K. tax year, but can pay at the last minute. everywhere, people I have never known, never Customers don’t need to manually enter their Ikigai, a U.K. digital banking and investment met.” banking details, and payment acceptance costs management provider, is using Plaid’s

For up to date and complete coverage go to AmericanBanker.com FRIDAY JUNE 4, 2021 AMERICANBANKER.COM PAGE 7 payments initiation API to enable users to Banks collected an estimated $12.4 billion move funds from their external bank accounts OVERDRAFTS in overdraft fees in 2020, according to a report to their Ikigai app-based checking, savings and by the nonprofit Financial Health Network wealth accounts. Ikigai customers authenticate that Ally cited. Those fees disproportionately themselves via biometrics when transferring Ally ditches affected Black and Latinx families, and 95% funds from their bank. of consumers who paid them were either “For Ikigai, quick, simple onboarding is overdraft “financially coping” or “financially vulnerable,” critical,” said Edgar de Picciotto, a co-founder the report found. of Ikigai. “Prior to our using Plaid, customers “Overdraft fees can be a major cause of could only fund their Ikigai account by leaving fees, citing anxiety. It became clear to us that the best way the Ikigai app and opening another banking to relieve that anxiety was to eliminate those app to make the transfer. Plaid’s flow results in consumer fees,” Diane Morais, president of consumer and 75% fewer clicks when compared to a manual commercial banking at Ally Bank, said in the account transfer, reducing the time spent on press release. account-opening by 50%.” harm In the first quarter of 2020, Ally reported $1 The U.K.-based Volt provides an open million in overdraft fee revenue, which was payments gateway based on PSD2-compliant By Polo Rocha around one-thousandth of a percent of its total technology from Yapily enabling merchants, June 02, 2021 deposits. Other big banks with large checking neobanks and PSPs to accept open banking Ally Bank is scrapping overdraft fees franchises collect sums from overdraft fees that payments. Having implemented Yapily’s permanently, explaining that the penalty are orders of magnitudes larger as a percentage technology in the U.K., Volt is now rolling it charges prompt customer anxiety and of their deposits. out in Europe, with clients including the Dutch disproportionately affect people of color. neobank Bunq and the Austrian PSP Ixopay. The bank, a unit of the $181.9 billion-asset “Leveraging Yapily’s infrastructure enables in Detroit, had previously waived MARKETPLACE LENDING us to route payments through the complex, overdraft fees early in the pandemic. Ally Bank unstandardized web of payment initiation APIs grew quickly over the last decade as many mandated by PSD2,” said Tom Greenwood, consumers flocked to online savings accounts, OCC not Volt’s CEO. “Our gateway gives clients a single and has long been far less reliant on overdraft simplified point of access so they can leverage fee revenue than many other large and mid- reviewing open banking payments to save money and sized banks. provide their customers with frictionless Ally CEO Jeffrey Brown said in a press release payment experiences.” Wednesday that eliminating the fees “helps Trump-era GoCardless, a U.K. provider of bank account- keep people from falling further behind and based online recurring payments services, feeling penalized as they catch up.” ‘valid when uses open banking technology to enable its “Overdraft fees are a pain point for many clients to accept direct debit payments from consumers but are particularly onerous for customers instead of card-on-file payments. some. It is time to end them,” he said. made’ rule, Its Instant Bank Pay service enables clients Brown’s comments follow similar remarks offering subscription services to pull an initial last year from PNC Financial Services Group Hsu says payment instantly from a customer’s bank Chairman, President and CEO William account when they set up an online direct Demchak, who said the industry should By Brendan Pedersen debit mandate. become “less reliant on some of the gotcha fees June 02, 2021 GoCardless client Cuckoo Broadband, a that historically have supported the industry.” WASHINGTON — While Congress is poised challenger U.K. broadband internet provider, PNC and other banks have rolled out options to unwind an Office of the Comptroller of the piloted Instant Bank Pay to collect initial and ad aimed at minimizing customer fees in recent Currency rule enabling loan sales to fintech hoc payments for new and existing customers months, though few banks have done away firms, the agency’s interim leader signaled that before the service’s launch in April 2021. with overdraft charges entirely. a separate companion rule is safe for the time “Using Instant Bank Pay for one-off At two congressional hearings last week, being. payments prevents customers who switch the CEOs of the nation’s largest banks faced Democrats in the Senate voted last month to us from an incumbent telco from losing criticism from Democrats for overdraft fees, to nullify the “true lender” rule under the access to our services, and helps reduce the with Rep. Carolyn Maloney, D-N.Y., saying that Congressional Review Act. It designates a time we spend chasing late payments and the they “hit those who can afford them the least bank as the true lender in a sale to a nonbank risk of costs outstanding,” said Cuckoo’s CEO, the hardest.” — preserving the bank’s authority to export Alexander Fitzgerald. During the pilot, Instant The Consumer Financial Protection Bureau interest rates — but critics said it allows fintech Bank Pay reduced the time needed for chasing is widely expected to take a tougher stance on firms to engage in rent-a-bank schemes. The and collecting failed payments from 21 days to overdraft fees during the Biden administration House is expected to block the rule as well. seven, he said. than it did previously. Meanwhile, Congress missed the legislative

For up to date and complete coverage go to AmericanBanker.com FRIDAY JUNE 4, 2021 AMERICANBANKER.COM PAGE 8 window to block an earlier OCC rule written position in a number of key in-state markets. Protection Program. in the Trump era that similarly reinforced Select, of Dunn, North Carolina, has the “We have long admired First Bancorp, and a legal principle that a bank loan is “valid No. 6 deposit market share in Fayetteville, our combined company will be positioned when made.” On Wednesday, Michael Hsu, home to the Army’s Fort Bragg — it has to capitalize on an enhanced presence in appointed by the Biden administration as about 7% of the region’s $5.4 billion-asset exceptional markets, talent, and financial acting comptroller, suggested that the agency deposit market, according to Federal Deposit strength,” Hedgepeth said in the release. has no plans to unwind it either. Insurance Corp. statistics. Fayetteville’s The deal is expected to close in the fourth “That’s not under review,” Hsu said on a call population of 212,000 is expected to grow 5% quarter. The acquisition would dilute First with reporters, referring to the valid-when- over the next five years. Bancorp’s tangible book value by 3%; the made rule. Select also has a presence in Charlotte, company says it expects to earn back the Hsu touched on a range of topics, though he Raleigh and Wilmington. First Bancorp and dilution within two years. stressed a desire “not to get too far in front of” Select disclosed the transaction after the ongoing reviews by OCC staff of actions taken market closed Tuesday. under the Trump administration. “We see this as a highly-attractive fill-in PREPAID CARDS Both the true-lender and valid-when- acquisition,” Stephen Scouten, analyst for made rules were intended to address legal Piper Sandler, wrote Wednesday in a research ambiguities in the secondary lending market note. “First Bancorp knows the Select team Bank of following the 2015 court decision in Madden v. well and the cost saves should be readily Midland Funding. achievable.” America Hsu also discussed pilot programs being The deal’s $314 million price tag works out undertaken by some of the nation’s largest to 185% of Select’s tangible book value. First banks to offer credit cards to Americans Bancorp is projecting cost savings of 45%, fixes ordered without credit scores — an offshoot of the with about three-fourths of that realized in agency’s Roundtable for Economic Access and 2022. Earnings accretion should top 10% after hacked Change, otherwise known as Project REACh. thereafter, according to First Bancorp. Hsu said that while the pilots remain in “There are a limited number of banks early development, one issue that had already remaining in North Carolina, hence the price customers ‘go emerged was the question of how banks would paid for Select,” Chris Marinac, director of be allowed to handle and use customers’ research at Janney Montgomery Scott, wrote hungry’ alternative data. Wednesday in a note. “Data privacy has been flagged as Select’s shareholders will receive 0.408 By Bloomberg News something that’s going to have to get worked First Bancorp Shares for each share of their June 02, 2021 out,” Hsu said. “Other things have been flagged Select common . Bank of America was ordered by a judge as well, but that’s one of them.” First Bancorp’s deal for Select “makes to change its practices after thousands of sense given the solid EPS accretion as well unemployed California customers receiving as the importance of playing defense within public benefits complained that when their COMMUNITY BANKS its strong North Carolina footprint,” Marinac prepaid debit cards were hacked, the bank wrote. made matters worse by treating them like The combined company would have $9.6 criminals. First Bancorp billion in assets and $8 billion of deposits. In response to allegations to that the bank “Select Bank is a high-quality institution was refusing to investigate account holder buying Select with a longstanding history of service and claims and in some cases freezing accounts strong community banking relationships,” that weren’t affected by fraud, U.S. District First Bancorp CEO Richard Moore said Judge Vince Chhabria on Tuesday directed Bancorp to Tuesday in a press release. the bank to take several steps to improve its First Bancorp’s last bank acquisition was in processes. The reforms were finalized in an bulk up in May 2017, when it bought the $196 million- agreement between the bank and lawyers for asset ASB Bancorp in Asheville, North the customers who sued in January. Carolina. “As California’s unemployment program North Carolina Select reported first-quarter earnings of faced billions of dollars in fraud, Bank of $6.3 million, up from $1.1 million a year America’s No. 1 goal always has been to By John Reosti earlier. CEO William Hedgepeth attributed ensure legitimate recipients could access June 02, 2021 the spike to its April 2020 acquisition of their benefits,” the bank said in a statement. First Bancorp in Southern Pines, North three branches in western North Carolina “With this agreement, we are committing to Carolina, has agreed to acquire the $1.8 from First Citizens Bank & Trust Co. in additional measures to help those entitled billion-asset Select Bancorp in a $314 million, Raleigh and its participation in the Small to unemployment benefits receive those all-stock deal that will bolster First Bancorp’s Business Administration’s Paycheck benefits as quickly as possible.”

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The San Francisco-based judge concluded high-touch in-person meetings. been vaccinated, but some of them are last month that the account holders suffered Yes, we can still go through the agenda hesitant about coming back into the bank for “irreparable harm” after Bank of America and meet all the legal requirements by monthly board meetings. It is understandable used a faulty screening process to freeze having attorneys, outside experts and even that many of them are more comfortable accounts needed to “feed their families and regulators provide virtual presentations, attending a virtual meeting from home after keep a roof over their heads” through the but way too much is being lost in the video more than a year of doing this. Shareholders, pandemic. translation. however, are not interested in their comfort, “Just as companies can establish There is no substitute for one-on-one but in whether or not they are fulfilling their irreparable harm by showing that losing contact around the board table where the responsibilities. money will likely cause them to shut down, really important and hard questions about Most banks have gone through great human beings can establish irreparable harm bank strategy and risk management can efforts and expense to ensure the safety of by showing that losing wages or benefits will be asked and then followed up with even their employees, especially customer-facing likely cause them to be evicted, go hungry, or harder questions and individual sidebars ones, during the pandemic. They have be denied necessary medical care,” Chhabria conversations. likewise done everything possible to protect wrote in May. There is no better way to get immediate their directors returning to the board room, Lawyers representing the account holders feedback on how fellow board members especially since many of them are seniors said in an emailed statement that the case really feel than by reading body language rightfully concerned with their health. will move forward with pre-trial information around the table. How do we really know Despite all these efforts, there will still be sharing, and that they’ll seek an order where all the board members really stand on a some directors who will not return to the requiring the bank to make permanent proposed merger or acquisition or regulatory bank for many months, perhaps not at all this changes to its practices as well as monetary issue if the only feedback we get is a matrix of year, for health, vaccination, travel or other damages. talking heads on a computer monitor? personal reasons. This raises the very difficult The case is Yick v. Bank of America, 21-cv- Most studies on the effectiveness of question: Are they acting in the best interests 00376, U.S. District Court, Northern District in-person vs. virtual board meetings of the bank and its shareholders? of California (San Francisco). obviously conclude the former is preferred, No two bank boards are the same, and although they were impossible during the individual differences must be respected. pandemic. For example, one study found Nonetheless, banks need to do whatever they BANKTHINK that “virtual communication sometimes can to encourage directors to get back in the discourages team members from speaking boardroom, sooner than later. up” and “reduces the social cues that help The era of team members bond, which can diminish Kenneth H. Thomas, Ph.D., president of motivation to share ideas and information.” Miami-based Community Development Fund virtual board That same study found that “people may Advisors LLC, taught finance at the University hold back when they can’t directly observe of Pennsylvania’s Wharton School for over 40 teammates’ reactions to their contributions.” years. He is the author of The CRA Handbook. meetings A New York Times article titled “Why Zoom Is Terrible” summarized many of needs to end the common problems associated with DIGITAL ID video meetings versus in-person ones: By Kenneth H. Thomas more rapid meeting fatigue; feeling isolated June 02, 2021 and disconnected from the group; lack of EU wants Bank directors should be getting back in focus and concentration; inability to mirror the boardroom — the one with the big table and discern emotional content of fellow banks to at the bank’s headquarters, not the virtual participants; difficulty in reading people’s one at home. reactions and thus predicting their actions; Having served on and presented to many inhibition of trust with lack of eye contact; adopt digital bank boards for decades, I know there is no and self-absorption in one’s own image and substitute for in-person board meetings, room background instead of being focused wallet, but it’s especially in America’s most heavily regulated on others. industry and at a time when the regulatory These and other virtual meeting pitfalls pendulum is swinging back toward stricter may result in suboptimal or even improper a tough sell supervision. risk assessments, especially if done over a After more than a year of virtual board long period. Only time will tell if the most By John Adams meetings, it is clear that all the high-tech crucial board decisions and risk assessments June 02, 2021 videoconferencing gadgets, even when they made virtually during the pandemic will turn The European Union’s proposed digital work without any freezing, signal loss, or out to be the right ones. wallet could struggle with adoption, despite its unsynchronized audio, are no match for Most bank board members I know have improvements to payment security, because it

For up to date and complete coverage go to AmericanBanker.com FRIDAY JUNE 4, 2021 AMERICANBANKER.COM PAGE 10 restricts companies from profiting from the systems will come to use it as part of validating according to van Wezel. project. users’ identities when making payments, “With the new scheme it would extend its The EU is expected to announce plans for applying for credit or establishing a banking scope to private services as well,” van Wezel an electronic wallet that would be available relationship,” said Eric Grover, a principal at said, adding there’s “huge potential” to make to citizens in its 27 nations. The wallet would Intrepid Ventures. identity vetting easier and shareable across store driver’s licenses, payment credentials The messaging around the EU’s project, states, but not as much potential to make and a single online identity to access public based on earlier speeches from EU officials, money on the ID service itself. and private services. Consumers will use is that standardized digital ID is necessary standardized biometric authentication such in a post-pandemic economy that’s more as fingerprint and retina scanning, among reliant on e-commerce, online banking, REAL-TIME PAYMENTS other methods, to enter a portal to apps from and contactless or remote engagement with participating banks, payment companies and companies and government facilities. other enterprises. Multiple European media sources Allied, Tyfone The EU is developing these standards with referenced a speech Thierry Breton, the EU member states, who will have to sign off on the Commissioner for digital policy, gave earlier partner protocols, with the app expected to be released this year saying broader digital ID would in about a year. The wallet project is scheduled provide an “extra secure” ecosystem for to be formally announced this week following post-pandemic life and give Europeans a key to deliver months of discussion and rumor, according to to their “digital twin.” The data marketing the Financial Times and Bloomberg. prohibition is being positioned as an incentive faster bill The near-term benefits would be limited to for consumers to adopt the digital wallet, security, enrollment and transaction vetting. which is optional. Breton’s office did not The FT reports companies that access user return a request for comment by deadline. payments for data through the wallet will not be allowed The technology that supports digital ID to use that data for marketing or related is not new, and almost nobody is in favor of small banks, commercial activity. Other digital wallets, such keeping passwords for different relationships. as Apple Pay and Google Pay, use enrollment The complication arises because digital or as the basis for cross-selling a variety of other federated ID requires participants in an businesses financial services and unrelated products open loop network to cede or share control such as streaming content. Apple Pay is the over proprietary technology to standardize By David Heun basis for Apple Card, a partnership with authentication methods. June 02, 2021 Goldman Sachs that uses Apple’s digital wallet Allowing companies more flexibility Allied Payment Network is linking its real- as a springboard for card issuance and App over how the digital ID system is used could time digital payment solutions to the digital Store sales. provide incentive for financial institutions to banking platform of Tyfone for community For banks and fintechs, the EU project is share their security technology. banks and small businesses. designed to address a long-standing goal of “While having an industrial-strength Consumers and small businesses using migrating away from static authentication standard means of authenticating users will Tyfone’s digital banking service can move such as passwords toward a more flexible form have value for banks and fintechs, being able funds immediately through Allied’s one-click of digital identity that uses the same login for to use it for marketing as well would have bill payment, a real-time movement of funds multiple relationships. enormous value,” Grover said. from a bank account to a biller or individual. There are potential benefits for financial The EU’s new wallet project is itself borne “Taking payments to the next level with services that use open banking, which out of interoperability concerns and is part of our real-time core collection and payment link bank accounts to third parties such as a review of distinct digital ID projects. processing allows financial institutions to payment and financial management apps. A limited number of EU countries have build engagement, which is vital to longevity A standardized form of authentication federated digital ID schemes, such as Sweden’s in this highly competitive marketplace,” recognizable across the EU could make BankID, Denmark’s NemID and iDIN in the Ralph Marcucilli, founder and CEO of Fort it easier to enroll and onboard users for Netherlands. Wayne, Indiana-based Allied, said in a repeated usage since all parties in the open “These schemes allow easy verifications Wednesday press release. banking relationship would be using the same through the e-banking infrastructure, not only Tyfone’s clients will have access to Allied’s form of authentication. A user could order a for bank account access but for all kinds of full digital payment service, including the car from a ride-sharing app, order ahead at a services including government,” said Ron van mobile app PicturePay, FlexPay bill payments restaurant and make a payment through the Wezel, a senior analyst at Aite. “But these are with e-bills, as well as account-to-account or same experience. The wallet could also be local and can’t be used in other countries.” P2P transfers, small-business payments and used to enroll consumers in digital bill pay The EU also has a program callediDASthat loan payments from external lenders. q for utilities or other monthly payments, or to supports cross-border identity without check in at a hotel or airport. requiring a face-to-face meeting, but that © 2021 Arizent and American Banker. “I would imagine banks and payment program is limited to public services, All rights reserved.

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