digitalbrine.com | @ernestpaul | CC-by SA
The recent news of the federal financial regulator granting ‘Fintech’ companies banking charters has made headlines. The topic remains fluid with speculative outcomes. A new regulation requires agencies to solicit for public comment and decision making is based on evidence. Needless to say, it is a lengthy process.
My optimism lies in the wake which ‘Fintech’ brings with it. It has morphed and matured and into a broad landscape and a massive ecosystem of its own.
‘Innovation from within’ in US regulated industries remains in rapid fire from networking & partnering to investing, inventing, incubating, acquiring, and building MVP’s.
‘Fintech’ companies are seeking independence, due to an oversupply in the US, while demand remains limited, due to regulation limitations on banking charters.
The graphic below sheds a global outlook:
a. Asia-Pacific (‘Fintech’ presents the most opportunity, less of a threat)
b. The United States (‘Fintech’ presents more of a threat, less of an opportunity)
Fintech bank charters related risks are a reality and a cautionary step by step approach by Federal & State regulators is real as well. Tolerance of risk and reward is just one of the factors shaping the future.
Choking the competition, never to see the light of day, has not worked, either.
The US shares a lot of firsts, one of them hybrid and electric cars and is recognized as an early contributory pioneer. However, it was an Asia Pacific country who mass produced it, in 1997.
In a global and shared economy, a containment outcome runs the risk of mass migration of US ‘Fintech’ startups to emerging economies, and/or the Asia-Pacific regions, where regulations are ‘Fintech’ friendly and State funding is readily available.
The Fintech innovation success stories from regulation friendly parts of Europe, and a few APAC countries have not gone unnoticed by the UK’s old guard.
The loosening of some UK financial regulation, has seen successful outcomes. This has possibly tipped the balance in the US.
A top regulator, ‘Thomas Curry’ from the Office of the Comptroller of the Currency revealed -Fintech firms shall be treated as ‘special purpose national banks’.
The agency would for the first time start granting banking licenses to “Fintech” firms, giving them greater freedom to operate across the country without seeking state-by-state permission or joining brick-and-mortar banks to function.
This regulatory response is open to public comment through Jan. 15 and is expected to create tremors in the banking industry, followed by deliberations inside the OCC. Will this first U.S. federal regulator to allow non-bank Fintech firms to fly on its gradual own, who for now relies on a symbiosis with larger brick & mortar banks, including the state-by-state permissions and other capital requirements, and more.
This may be the first, of many more volleys of regulation challenges, bureaucratic debates, and stakeholder jousting. The eventual political opinion/actions shall determine, if US banking and Fintech firms are to be equals.
This move by regulators, since Dodd-Frank have been working hard at seeking an equilibrium between innovation, consumer choices, unmet consumer choices, while extending traditional protections to new and booming financial products which began to emerge, post 2008 Financial crisis.
The proposed move was cheered by the tech sector who had long been seeking independence, but frowned upon by financial institutions, some consumer groups and state regulators who see threats in reversing the traditional order.
A legislative/executive action may possibly determine, if US banking and Fintech firms are to be equals.