Among the topics covered in this discussion are how we view the OCC’s announcement, how existing banks may want to look at the announcement, and the largest challenge that we think may emerge for FinTech companies entering the banking space.
Unfortunately, the highlight of this episode… me completely cracking up during Jonathan’s introduction… will have to wait until a later blooper reel. It was early enough in the recording that we decided to start over.
The fintech industry has justifiably greeted the OCC’s announcement of a national fintech charter with optimism. But one area where we have seen significant confusion is the possibility of the fintech charter being granted without deposit insurance, and the implications thereof.
Background. On December 2, 2016, OCC Comptroller Thomas Curry announced that the OCC is planning to take applications from fintech companies wishing to obtain a special purpose national bank charter. These banks would be national banks with the same privileges and obligations as traditional full-service national banks, but with specialized business plans and that may or may not choose to have deposit taking authority.
In his remarks, Comptroller Curry expressed his excitement about the great potential to expand financial inclusion and reach unbanked and underserved populations. At the same time, clearly recognizing that there are some industry players that are worried about new sources of competition from fintech banks, or that these new banks might otherwise have unfair advantages, Curry took great pains to seek to alleviate those concerns in his remarks and in the OCC’s white paper on the proposal.
Curry acknowledged that it will be difficult for the agency to determine the requirements to charter a fintech bank because of the “diversity of approach” among fintech companies. He noted that, for example, a payments model would be different than a marketplace lending one. However, he said that the OCC is a “firm believer in tailored innovation” and has the existing framework to evaluate these issues in the chartering process. Consistent with existing OCC regulation, the white paper states that a special purpose bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: receiving deposits, paying checks, or lending money.
On November 29, 2016, the FDIC, as part of its Community Banking Initiative, held an outreach meeting in Atlanta. While the FDIC has indicated that it will publish a handbook regarding applications for deposit insurance in the coming weeks (which we’ll also summarize), we thought it made sense to provide a few highlights from that meeting:
Mechanics. The mechanics of the chartering process are the same as before.
Business Plans. As expected, there will be greater scrutiny on business plans, making sure that banks stick to their business plans post-opening, and (not expressly stated but as translated by me) ensuring that the results of the bank’s business plan do not deviate greatly from the original projections (i.e., providing for limited ability to take advantage of natural growth in the new bank’s markets or lines of business during the first three years of operations if not reflected in projections). Approvals to deviate from one’s business plan will not be granted under most circumstances.
Atlanta Partner Jonathan Hightower authored a BankThink piece in the American Banker on May 9, 2016 titled “Don’t Ignore This FDIC ‘Request for Comment.’” The discusses FDIC Financial Institution Letter FIL-32-2016, which asks for comment on the agency’s plan to explore the economic inclusion potential of mobile financial services.
Jonathan notes “banks’ focus on mobile products not only provides innovative benefits to underserved consumers who may lack branch access, but in light of regulators’ interest in the potential for mobile technology to expand economic inclusion, this focus may also help institutions overcome regulatory and community-based challenges to mergers.”
We are pleased to announce that we are co-hosting a conference with Banks Street Partners and TTV Capital that will take a new look at the opportunities that exist for the banking community within the evolving Fintech landscape.
The agenda features prominent industry speakers regularly quoted in the media as foremost experts in the banking and fintech arenas. The morning keynote will be given by Chris Nichols, Chief Strategy Officer for CenterState Bank. Chris Nichols is an active bank investor, entrepreneur and lover of quantified banking. He currently serves on the Editorial Advisory Board of Banking Exchange and is co-founder of Wall&Main, Inc. a leading platform for crowdfunding. Prior to joining CenterState, Chris was CEO of the capital markets arm of Pacific Coast Bankers’ Bank and is the former author of the Banc Investment Daily.
“My biggest surprise after moving to London in September is how far the U.S. has to catch up to the United Kingdom and other European Union countries in the fintech and payments innovation race. Compared with their U.S. counterparts, U.K. and EU regulators are really trying to encourage payment innovation through licensing regimes. One thoughtful and pragmatic step taken by the U.K.’s payments regulator, the Financial Conduct Authority, was to ask industry for its input on appropriate policy. But the U.K. and EU’s bigger advantage is how their ‘e-money’ and payment service licensing processes work compared with U.S. state money transmitter laws.”
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