For a couple of months, the financial industry has been talking about the possibility of a national bank charter for non-bank financial technology companies (fintechs, or companies that use technology to make financial services more efficient) even though such a charter has not been issued since the financial crisis.
In March, the Wall Street Journal reported that national banks’ federal regulator, the Office of the Comptroller of the Currency (OCC), has been gathering information for a white paper on new companies and how they relate to banks—and where there is room for innovation in the federal banking system.
The advantage of an entity having a national bank charter is that the entity would be allowed to operate under a uniform federal standard without being held back by state or local regulations. But there are many questions to consider when weighing the possibility of a national bank charter for fintechs.
“I think the industry is discussing a national charter for non-bank financial technology companies because they recognize the value of having a uniform set of standards that applies across the country and a single primary regulator,” said Deputy Comptroller Kay Kowitt, head of the OCC’s Innovation Framework Development Team. “While that may make a lot of business sense, determining whether a national bank charter is right for these companies requires answering many important questions. Are these companies providing products and services that banks are authorized to offer? What are the prudential requirements for these types of institutions? Does a more limited-purpose charter make sense? If a national charter makes sense, are existing chartering authorities sufficient or does it require new authority? These are the sorts of questions that the OCC framework for responsible innovation will help answer, at least for the federal banking system.”
“The OCC is taking exactly the kind of progressive approach to financial innovation that exemplifies why the United States is the best marketplace in the world.”
Fundrise CEO Ben Miller
The OCC’s engagement and research on the possibility of a bank charter for fintechs has the industry buzzing in a positive way. One fintech that welcomes the possibility is Fundrise, a real estate investment company.
“The OCC is taking exactly the kind of progressive approach to financial innovation that exemplifies why the United States is the best marketplace in the world,” Fundrise CEO and co-founder Ben Miller said. “An engaged regulator provides companies like Fundrise a thought partner as we use the power of the Internet to revolutionize how investing works.”
Many banks are just now beginning to embrace fintechs and consider the possibilities of partnering with them instead of viewing them as competitors. In mid-March, Comptroller of the Currency Thomas Curry said in an address that even though many tech-savvy consumers prefer the conveniences a fintech offers, it would be “wrong to assume” that fintechs would replace banks. In another address at the end of March, Curry stressed the need for banks to be innovative to keep up with fintechs but at the same time he emphasized the differences between “responsible” innovation and just plain innovation.