As concentration among federally insured banking is growing, fintech players are making a play in core consumer finance markets - deposits, payments and credit - contributing to competitive pressure, says a new Treasury report.

While these non-bank entrants are contributing to more choice, better services and lower prices for Americans, they are not subject to the same oversight as traditional banks.

However, because the established players are often vital to the underlying infrastructure that supports the new business models of fintechs, there is a lot of interaction between the two camps - both as competitors but also collaborators.

The report recommends a series of steps to deal with the tangled relationships between banks and fintechs.

"Regulators should provide a clear and consistently applied supervisory framework for bank-fintech relationships. A bank-fintech relationship that delivers consumer financial services provided by an insured depository institution (IDI) must operate in compliance with the laws, regulations, and risk management standards applicable to the IDI," says the report.

In addition, watchdogs should "robustly" supervise bank-fintech lending relationships for compliance with consumer protection laws.

Regulators should also support innovations in consumer credit underwriting designed to increase credit visibility, reduce bias, and prudently expand credit to underserved consumers.

US Secretary of the Treasury Janet Yellen says: “While non-bank firms’ entrance into core consumer finance markets has increased competition and innovation, it has not come without additional risks to consumer protection and market integrity.

"This report lays out actions that would maintain fair, transparent, and competitive markets while encouraging responsible innovation that benefits consumers."

Read the full report: