Fintech innovation operates in an ever-evolving financial regulatory landscape. Regulators are stepping up scrutiny of non-banks, particularly marketplace lenders, even as the new Consumer Financial Protection Bureau (CFPB) establishes its mandate and rules. This shifting landscape carries regulatory implications for traditional banks weighing fintech partnerships. In this blog series, Mirador will recap the latest regulatory developments with potential impact for bank-fintech partnerships.
Enabling the Banks
According to the newly released American Bankers Associations’ (ABA) Fintech Playbook, banks need to embrace technology solutions or risk losing significant market share if they choose to ignore new, innovative methods of doing business. In collaboration with Accenture, ABA created the Fintech Playbook to help bankers leverage new technologies and remain competitive in a fast-evolving environment.
The playbook was only available to ABA members; however, the executive summary provides a glimpse into the guidance offered. The projected numbers are staggering: according to this analysis, banks stand to lose $15 billion by failing to partner with fintech. On the flipside, banks and other financial institutions that invest in fintech could realize potential gains as high as $20 billion in operating income by 2020.
The playbook outlines strategies for member banks to move forward in the fintech space and provided worksheets helping to prioritize needs and areas of focus for investment. Fintech companies that can enable the banks to enter into new space or become more profitable in existing markets are investments flagged as prime opportunities for the banks. In fact, the playbook suggested taking advantage of the fintech innovations specifically focused on bringing new capabilities to the banks. They warned that the real threat to banks was not competition from fintech, but competition from their other bank competitors who do invest in fintech intelligently and early.
Do we need a “fintech charter”?
At a recent conference on marketplace lending, the Comptroller of the Currency Thomas Curry discussed the idea of a limited, national fintech charter. Much a like a charter for a national bank, the fintech charter would create a compliance agreement with the Office of the Comptroller of the Currency, or OCC, and subject relevant players to a number of existing regulations to ensure safety and soundness. In return for agreeing to comply with many of the existing bank regulations, fintech companies can avoid the patchwork of state bank regulations under which they currently operate.
Comptroller Curry’s remarks focused more broadly on how regulators are approaching marketplace lending and other fintech products and services. In March of this year, the OCC released a white paper on responsible innovation in the lending market, and requested feedback from interested parties on how to approach this new market. As prudent regulators, the top goal is ensuring safety and soundness in the system, yet Curry and the OCC realize the danger of stifling innovation through regulation.
Whether or not the OCC formally proposes a national fintech charter, Mirador bridges the gap between traditionally regulated banks and credit unions and online borrowers. Using Mirador technology, these financial institutions — which are already subject to safety and soundness standards — can offer their lending products with the same ease, efficiency and speed as digital marketplaces. Traditional financial institutions offer lower rates and better terms to their small business customers. Allowing their lending products to reach those small businesses looking for capital in the online market should have an overall positive impact on the entire sector, forcing alternative lenders offering the highest rates and most unfavorable terms to change their practices or lose out on these lending opportunities.