A new, special-purpose bank charter set to be awarded to select financial technology companies promises to be a boon for both the companies and banks, two fintech experts say.
“If [a fintech company] gets a charter, banks will be able to partner more quickly. Before, the relationship fell into a gray area for the banks, and cooperation was done on a case-by-case basis,” says Jason Henrichs, managing director at FinTech Forge, a managed-service business that helps financial institutions engage with technology providers.
For both parties, the regulation will go a long way toward eliminating uncertainty and boosting collaboration, he adds.
The Office of the Comptroller of the Currency announced on December 2 that it would move forward with considering applications from fintech companies to become special-purpose national banks. Companies that provide banking products and services can apply for the charter and will be examined to make sure they have sufficient liquidity and capital, “a reasonable chance of success” and “effective consumer protection,” among other factors, according to an OCC press release.
The regulation is a good step toward “starting a dialogue with the innovators,” Henrichs says: “The US regulatory system has historically addressed process and procedures and was not proactive. As a result, we end up implementing things that are highly reactive and so massive that they take years to execute.”
Other countries—notably Singapore and the UK—use a more proactive “learn and test” approach that looks at the intent and potential outcome, such as ways to make the customer whole if something goes wrong and mechanisms to approach the regulator before a situation deteriorates. That approach allows the founders to focus on building their business rather than dealing with regulatory issues, says Amit Goel, co-founder and managing director of India-based blog Let’s Talk Payments.
A white paper published by the OCC discussing the issues and conditions it will look at while evaluating charter requests is available for public comment through January 15. The comments will serve as a base for the exact criteria the agency will use when making charter-granting decisions, according to Henrichs.