Is there a future in Fintech Banks? On July 31st, the U.S. Treasury Department released a report that prompted the Office of the Comptroller of the Currency (OCC) to begin accepting applications from fintech for special purpose national bank charters.
This is yet another sign of the extensive growth in the Alternative-Lending industry. This bodes well for fintech companies that have, until now, have been mostly prevented from applying for national bank charters because of protest from banks and others stemming from the concern that these companies will not be subject to adequate regulations. Now, the OCC, a significant regulator, is opening the gates for non-depository fintech companies, like the major players in our industry – OnDeck & Kabbage – to become banks.
Joseph M. Otting, head of the OCC (Comptroller of the Currency), said “The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy… Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank.”
The main benefit of becoming a regulated bank for a fintech company is the ability to now operate nationwide under a single licensing and regulatory system, as opposed to a plethora of state licenses. Currently, fintech companies must adhere to the regulations in each state where they do business, which can be expensive. Additionally, the regulations vary from state to state and fluctuate in their level of strictness.
Not all were pleased with the OCC’s decision. The New York Department of Financial Service and Conference of State Bank Supervisors (CSBS) was actually angered by the decision. The President of CSBS, John W. Ryan, said: “An OCC fintech charter is a regulatory train wreck in the making.”
The OCC indicated in its original announcement that fintech companies that become special-purpose national banks would be subject to heightened supervision.
Regardless of the debate of whether or not fintech companies should become special-purpose national banks, this is a sign that the United States Government is keeping a very close eye on the alternative-lending industry. As the industry continues to grow, it only makes sense that the government would instill a way to increase the industry’s growth on a national scale while applying new regulations to retain customer protection.
To learn more about the global growth of the alternative-lending industry, check out some of our other blog posts.
First reported by deBanked