Fed Governor Michael Barr: Bank-FinTech Relationships Will Drive GenAI Adoption

Bank-FinTech relationships are likely to drive the integration of GenAI into banking, Federal Reserve Governor Michael S. Barr said Friday (April 4).

The integration and innovation will be driven by both competition and cooperation, Barr said in a speech prepared for delivery at the Federal Reserve Bank of San Francisco.

“As GenAI technology continues to develop, there’s a good chance that FinTechs will help drive widespread GenAI adoption in financial services,” Barr said.

FinTechs can generally integrate the latest AI capabilities because they don’t have old infrastructure into which they would have to integrate it, they have financial and time constraints that drive them to use cutting-edge technology for quick solutions, and they have a single product for which they can optimize their tech stack, Barr said.

“These attributes of FinTechs can make them symbiotic with banks,” Barr said.

Banks have the deep customer data needed for large language models (LLMs), the ability to look across a range of business lines, and the customer relationships and control frameworks that support credibility and trust, Barr said.

The qualities of FinTechs and banks mean that they may form collaborative partnerships that bring together their strengths, or they may compete in a way that drives banks to adopt GenAI applications more quickly, Barr said.

In either case, as GenAI begins to enter the regulated sector, bank risk managers and regulators must become familiar with the technology so that they are ready for its arrival, Barr said.

“These changes will require broad-based curiosity from regulators, FinTechs and banks — combined with education and investment — to create a culture of awareness on the opportunity and risks of the technology,” Barr said. “Equally as important is leadership, to establish appropriate governance over AI and provide appropriate direction on priorities.”

While AI tools have the potential to revolutionize the financial industry, banks face significant hurdles in effectively integrating these tools into their systems, according to the PYMNTS Intelligence and NCR Voyix collaboration, “Is AI the Master Key to Banking’s Next Era?”

The report also found that banks can drive innovation and facilitate AI adoption by forming alliances with FinTech companies.