Welcome back to Human Capital. In this week’s issue, we’re spotlighting a few of the many voices weighing in on the Treasury Department’s release Tuesday of its 222-page report calling on the Office of the Comptroller of the Currency to create a special charter for fintech companies.
The OCC followed suit the same day, announcing the bank regulator would start taking applications for national bank charters from fintech companies engaged in banking. “The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy,” said Comptroller of the Currency Joseph Otting.
What does the Treasury report say? Since the financial crisis, “a proliferation in technological capabilities and processes” has developed “increasing levels of cost effectiveness and speed.”
The use of data and mobile devices, along with the speed and expansion of information flow, “all have broken down barriers to entry for a wide range of startups and other technology-based firms that are now competing or partnering with traditional providers in nearly every aspect of the financial services industry.”
From 2010 to the third quarter of 2017, more than 3,330 new technology-based firms serving the financial services industry have been founded, 40% of which are focused on banking and capital markets, the report states.
In the aggregate, the financing of such firms has been growing rapidly, reaching $22 billion globally in 2017, a 13-fold increase since 2010.
Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, noted that while she has “great hopes” for fintech firms’ ability to open up consumer access to products and services, she also has “deep concern” about adequate consumer protection being in place.
Waters also balked at the OCC providing “little opportunity” for deliberation on “this new charter regime,” and questioned OCC’s legal authority to take such a step.
There’s “concern that the OCC’s fintech charter could allow nonbanks to pre-empt state laws that are meant to protect consumers,” Thaddeus King, officer for The Pew Charitable Trusts’ consumer finance project, told me in a Friday email message.
However, he added, the OCC “has expressed an unfavorable view of banks partnering with payday lenders and has also made clear that it does not want OCC-chartered institutions to offer unaffordable and unsafe loans. As the OCC moves forward, it must keep consumer protection front and center.”
Nick Bourke, director of The Pew Charitable Trusts’ consumer finance project, said on a Wednesday webcast that there was “not a lot” in Treasury’s fintech report “about consumer protection or how to ensure that we have a safe and sound marketplace,” and he cautioned against “rushing ahead to encourage more financial innovation before we have those strategies sorted out.”
Indeed, Pew’s just released report suggests that U.S. regulators take a cue from international regulators and create a more coordinated approach to encouraging innovation, “one that reduces regulatory ambiguity and protects consumers.”
Like in Australia, “where the Treasury Department took steps to be a coordinating agency among all the various government actors, it’s probably a positive step for a [U.S.] federal regulator [like Treasury] to try to convene and create a sense of coordination among regulators,” Bourke said.
However, “it’s way too soon to know if this [Treasury] process is going to lead to the kind of clear goals for why regulators should even be involved in fostering financial innovation in the first place,” Bourke opined. “If this kind of collaboration leads to a sense of clear goals for why the regulators should be fostering financial innovation and how they’re going to do it in a way that protects consumers,” that’s positive.
Former Treasury official Jonah Crane, previously spotlighted in Human Capital, opines that Treasury’s white paper on fintech “recognizes the important role of consumer data access in facilitating innovation that benefits consumers.”