I write so much that I sometimes forget what I’ve written, and where. For example, Mark Sievert of Silicon Valley Bank made an interesting comment on my predictions for 2017:
Happy New Year, Chris! One topic I am not hearing much about is the OCC December decision to offer Federal Charters to Fintech firms. Many larger and some smaller have targeted the fintech niche for transaction sales growth, Cross River has taken it to the next level. What am I missing that if a SoFi or Stripe chooses the federal Charter route, that doesn’t profoundly change the fundamentals re traditional banks and their survival? How does that not make a top ten list?
I read that and thought, doesn’t he read my blog? Well, as I’ve met Mark a few times, I know he does. So what was I missing? Ah! I wrote about this on one of my other blogs, in this case FinXTech.
FinXTech was launched last year for the US markets by Bank Director, and I’m part of their Advisory Group. The aim of FinXTech is to provide authoritative, relevant and trusted content to:
- Fintech companies who view banks as potentially valuable channels or distribution partners.
- Banks looking to grow and/or innovate with fintech companies’ help and support.
- Institutional investors, venture capitalists, state & federal regulators, government officials and academicians helping to shape the future of banking.
In my role as part of the Advisory Board, I write a couple of features each month, and at the end of December I wrote this one. Enjoy!
Proposed fintech charter could sprout waves of US digital banks
I’ve been critical of the US regulators for some time, as the complex mixture of different state, national and federal licensing boards makes it difficult for fintech innovations to break through. This is pretty obvious when you think that there isn’t a single new digital bank launched in the US, when there are dozens across Europe. There, you have N26, Solaris and Fidor in Germany; Knab and Bunq in the Netherlands; and a whole range of new startups in the UK, including Atom, Starling, Monzo, Loot and Tide. Can you name a new US digital bank?
Well, you may well be naming a few quite soon. Recognising the innovation in the EU and UK, the Office of the Comptroller of the Currency (OCC) has announced that it will support fintech innovations from neobanks to special banks, and creating breakthrough possibilities for firms in digital currencies such as bitcoin. This is pretty radical, and overrides a lot of the barriers to breaking into US banking today if approved, as the idea is currently under consultation.
The idea is that fintech startups could get licensed by the OCC under the National Bank Act and given a special purpose national bank charter. This is a licence used by several firms already, including some trust and credit card banks, and would allow fintech firms to operate nationally without all the overhead of dealing with state regulations. This is a serious breakthrough for American markets and fintech companies if implemented, as one of the reasons that you don’t have national neobank startups in the US is the complex spaghetti of regulations and authorities you have to deal with to get started.
Financial Innovation Now (Fin) – a public policy coalition of Amazon, Apple, Google, Intuit and PayPal – has been one of the key groups applying pressure to the OCC for these reforms. Back in the summer, the consortia produced a fascinating report on the complexity of US financial regulations. As cited by these internet giants, compliance requirements constitute a significant market barrier, particularly for new entrants, and can serve to protect incumbent providers from new competition.
Obviously, companies such as Amazon and their brethren are listened to, and the OCC has responded. Equally, Fin has been calling on the new administration to focus on fintech. At the end of November, the group called on President-elect Trump to embrace technology’s potential to make financial services better for American consumers and small businesses in a letter. A key paragraph in that letter stated:
Technology and the internet are changing the way consumers and small businesses manage money, access capital, and grow commerce. Financial regulators around the world are paying close attention to this transformation and actively working to adopt policies that attract investment and create jobs in these new services, ultimately benefiting their own consumers and businesses. While America’s financial regulators and Congress have recognized this potential on a bipartisan basis, more leadership and federal coordination is necessary.
What Fin is getting at in this letter is that some markets – Germany, Britain and Singapore in particular – are a hotbed of financial innovation through technology. Does the US want to fall behind? I don’t think so, and Amazon, Apple, Google, Intuit and PayPal are on the campaign trail to make sure it doesn’t. With the OCC, and hopefully an open ear from a new president, it will be fascinating to see just how radical 2017 will be.