Could FinTech Firms Soon Be “Special Purpose National Banks”?
Last week the Office of the Comptroller of the Currency (OCC) laid out a plan that would allow financial technology companies to apply for a national charter. Under this proposal these firms would then become “special purpose national banks” as long as they do at least one of three things: give loans, take deposits, or pay checks. Announcing this big news, Wall Street Journal quotes OCC head Thomas Curry as saying, “It will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed.” According to Reuters, Curry also said that FinTech companies “are the future of banking and the economy.”
This is a major step forward for the sector and will soon make it easier for companies to operate nationwide under a single license. Currently businesses like peer to peer leader Lending Club operate on a state-by-state basis. It also removes the need for firms to partner with brick and mortar banks as had previously been a requirement for many FinTech companies.
Not only is this good news for the companies themselves but could also benefit customers. In addition to those in states that currently don’t allow certain FinTechs to operate now being able to take advantage of their services, this plan is also likely to further reduce the operation costs that firms incur overall. Since efficiency and passed-on savings are what many FinTech operations have built their name on, it stands to reason that investors, borrowers, and users will reap rewards as well.
It should also be noted that, while the OCC will now allow firms to pursue a national license, it will not require them to. Those that wish to stick with their current state licenses and dual banking system may do so. As Curry said in his speech, “Preventing this class of companies from having that same option hurts the nation’s dual banking system and could make the federal banking system less capable of adapting to the evolving business and customer needs of tomorrow.”
With that in mind it will be interesting to see how many FinTech operations choose to change their model and apply for the new “special purpose national bank” status. Although the benefits (and savings) may be attractive longterm, it’s unclear what costs might be involved up front. Regardless there’s no doubt that this is an exciting development for the industry and a win-win for businesses and regulators. Curry said as much in his speech, concluding, “The reality today is that the 4,000 FinTech companies out there are already competing with national and state banks, without regard to any of the national bank responsibilities and under a patchwork of supervision,” adding that the new plan, “levels the playing field because statutes that by their terms apply to national banks would apply to all special purpose national banks, even uninsured ones.”
At this time the OCC is in the process of drawing up its official guidelines for FinTech banks, gathering feedback from their latest proposal. It’s unclear when firms will officially be able to apply.