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The Department of the Treasury and of the Currency Controller recently released important documents to provide indications on Banking innovation, more controls on the use and sharing of consumer data and the potential for a new card for financial technology companies (through OCC) .The response to these proposals ranged from enthusiastic approval to the confusion and rejection of some components of the recommendations
The aim of the recommendations is to create a regulatory environment that supports responsible innovation and economic growth in the financial sector. & nbsp; The Treasury Department report makes more than 80 recommendations related to fintech and non-bank financial policy Treasury officials have estimated that two thirds of their recommendations could be and issued directly by regulators, while the rest requires that & nbsp; Congressional action. Some of the most anticipated recommendations revolved around the aggregation of consumer data and the sharing of data between different organizations, similar to what is now available in the United Kingdom.
The new recommendations from the Treasury and the OCC are both welcome and long overdue. Doing nothing was not an option, given the growth of the Fintech investment which has just reached a new high in the first half of this year, according to the 1956-900 report by KPMG Pulse of Fintech [19659008]. With clear guidelines, organizations of all sizes can compete on a relatively fair playing field where collaboration between suppliers will be more structured.
It is not surprising that the representatives of the fintech companies have supported the relationship, while the community banking organizations and consumer advocacy groups have given a much more lukewarm reception, especially regarding the potential of a federal charter of the Fintech. Some of the concerns concerned the immediate opening of new special cards for special purposes, bypassing the current patchwork of state licenses.
Impact on traditional banks Unknown
& nbsp; Despite the concerns of some banking organizations about the potential to "open doors" to new non-traditional banking organizations, recent history does not support this thesis. In the United Kingdom, where similar regulations are already in place, a surprisingly low number of fintech companies have decided to go through a bank lending process.
The questions come mostly from large companies that already have a solid capital base compared to the thousands of start-ups that already exist. Furthermore, the fact that OCC will only accept applications from non-depository companies could limit applications.
"Providing a path for fintech companies to become national banks can make the federal banking system stronger by promoting economic growth and opportunities, modernization, innovation and competition," said auditor Joseph Otting, also mentioning support for the new growth of small businesses and greater consumer choice.
Competition in new financial technologies is not new. Traditional banks are already confronted with large and small competitors using digital technology and advanced analytics to provide more personalized, faster and less expensive financial services. Many of these companies have become household names, such as PayPal, LendingClub, SoFi and Venmo. Financial services are also provided by large technology companies, including Google, Amazon, Facebook and Apple (GAFA), while the storage of funds is a significant part of the Starbucks loyalty program.
Most Fintech companies do not want to be "banks"
Actually, there will be very few companies that decide to follow the fintech charter route, since there are simpler ways to have an impact on the market through partnerships and even the purchase of fintech smaller businesses from traditional financial institutions. In addition, the entire structure of the proposals considers fintech companies similar to banking organizations rather than technological solutions that can be used to build a better global banking ecosystem. This "old school" perspective of the banking sector does not reflect the realities of the current banking ecosystem.
These recommendations will provide a tightening of existing gaps. We are already seeing that larger banks build digital only units and smaller fintech companies succeed in their narrow product innovation. Instead of getting the cards, there are better ways to respond to consumer needs through collaborations.
Even large technology companies (GAFA) would most likely want to avoid becoming a "traditional" banking organization. The bank compliance requirements are much more than in the technological space. These companies have already demonstrated their ability to compete with traditional financial services companies in loans, payments, acquisitions of deposits, etc. And there is no reason why technology organizations will have to replicate the obsolete model of a traditional bank.
The advantage of a fintech company is the ability to serve a rather narrow range of segments in a way that current financial institutions do not have. We're no longer talking about an account format that includes a control, savings, investment, loan and payment service, but rather a digital financial relationship that integrates the best of all these components into a service that has no barriers and can be formatted way a consumer wants.
The Treasury and OCC recommendations enable more innovation, better partnership structure and closer regulation of consumer data. All good news At the end of the day, the market will move forward with or without these regulations.
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The Treasury Department and Office of the Comptroller of the Currency both released important documents recently providing directions on banking innovation, major controls on the use and sharing of consumer data and the potential for a new card for financial technology companies (through OCC) .The response to these proposals ranged from enthusiastic approval to the confusion and refusal of some components of the recommendations
The goal of the recommendations is to create a regulatory environment that supports responsible innovation and economic growth in the financial sector. The Treasury Department report makes more than 80 recommendations related to fintech and non-bank financial policy: Treasury officials have estimated that two thirds of their recommendations could be issued directly by the regulatory authorities to request congressional actions. Some of the most anticipated recommendations revolved around the aggregation of consumer data and the sharing of data between different organizations, similar to the one now available in the United Kingdom.
The new recommendations from the Treasury and the OCC are both welcome and long overdue. Doing nothing was not an option, given the growth of the Fintech investment which has just reached a new high in the first half of this year according to the report KPMG Pulse of Fintech . With clear guidelines, organizations of all sizes can compete on a relatively playing field where collaboration between suppliers will be more structured.
It is not surprising that the representatives of the fintech companies have supported the relationship, while the EU banking organizations and consumer advocacy groups have given much warmer warmth, especially around the potential of a fintech federal card. Some of the concerns concerned the immediate opening of new special cards for special purposes, bypassing the current patchwork of state licenses.
Impact on traditional banks Unknown
Despite the concerns of some banking organizations regarding the potential to "open the door" to new non-traditional banking organizations, recent history does not supports this thesis. In the United Kingdom, where similar regulations are already in place, a surprisingly low number of fintech companies have decided to go through a bank lending process.
The questions come mostly from large companies that already have a solid capital base compared to the thousands of start-ups that already exist. Furthermore, the fact that OCC will only accept applications from non-depository companies could limit applications.
"Providing a path for fintech companies to become national banks can make the federal banking system stronger by promoting economic growth and opportunities, modernization, innovation and competition," said auditor Joseph Otting, also mentioning support for the new growth of small businesses and greater consumer choice.
Competition in new financial technologies is not new. Traditional banks are already confronted with large and small competitors using digital technology and advanced analytics to provide more personalized, faster and less expensive financial services. Many of these companies have become household names, such as PayPal, LendingClub, SoFi and Venmo. Financial services are also provided by large technology companies, including Google, Amazon, Facebook and Apple (GAFA), while the storage of funds is a significant part of the Starbucks loyalty program.
Most Fintech companies do not want to be "banks"
Actually, there will be very few companies that decide to follow the fintech charter route, since there are simpler ways to have an impact on the market through partnerships and even the purchase of fintech smaller businesses from traditional financial institutions. In addition, the entire structure of the proposals considers fintech companies similar to banking organizations rather than technological solutions that can be used to build a better global banking ecosystem. This "old school" perspective of the banking sector does not reflect the realities of the current banking ecosystem.
These recommendations will provide a tightening of existing gaps. We are already seeing that larger banks build digital only units and smaller fintech companies succeed in their narrow product innovation. Instead of getting the cards, there are better ways to respond to consumer needs through collaborations.
Even large technology companies (GAFA) would most likely want to avoid becoming a "traditional" banking organization. The bank compliance requirements are much more than in the technological space. These companies have already demonstrated their ability to compete with traditional financial services companies in loans, payments, acquisitions of deposits, etc. And there is no reason why technology organizations will have to replicate the obsolete model of a traditional bank.
The advantage of a fintech company is the ability to serve a rather narrow range of segments in a way that current financial institutions do not have. We're no longer talking about an account format that includes a control, savings, investment, loan and payment service, but rather a digital financial relationship that integrates the best of all these components into a service that has no barriers and can be formatted way a consumer wants.
The Treasury and OCC recommendations enable more innovation, better partnership structure and closer regulation of consumer data. All good news At the end of the day, the market will move forward with or without these regulations.
