The digital shift encourages FinTechs to obtain licenses
As we move through what could be the final stages of the pandemic, as the vaccines may end this public health nightmare, the virus has altered several lines of business – permanently.
Banking is no exception and the lines are blurring between a multitude of players in the financial services ecosystem. Digital first, digital only. Linked accounts, installment loans, instant payments. Traditional financial institutions (FIs), once so dependent on physical interactions, now have their mobile users in the tens of millions.
Banking, then, as it continues its great digital shift, has its appeal – but first, of course, comes the banking license.
The Wall Street Journal reports that a wide range of businesses are looking to become banks, judging by the volume of banking license applications.
According to the tables of the Office of the Comptroller of the Currency (OCC), 10 companies have applied for national banking charters as measured in the fiscal year that ended Sept. 30 – and that’s the biggest tally in a decade.
And after the year ended, there were more applicants, including Oportun Financial Corp., which operates as a consumer lender. Separately, and as profiled in this space, Miniatures technologies said he had asked for a national charter. Varo Money bank got its own national charter over the summer to offer free checking and savings accounts through a mobile app. And Square, of course, got the go-ahead from the Federal Deposit Insurance Corporation to set up a de novo bank in Utah to offer small business loans and other financial products.
Strike while the iron is hot
The dominant theme, we could submit: Strike while the iron is hot. The Journal noted that banks have had to set aside multibillion-dollar reserves to counter the impact of loan degradation. We are certainly on uncertain economic ground, in a stubbornly high context unemployment and there is no shortage of headwinds for business.
Low interest rates, of course, reduce margins. Margins, of course, are on the minds of every finance manager, as what a business lends must be weighed against what it pays out of the accounts of its own customers, who are also a source of dry powder. for loans. It’s a delicate balance, that’s for sure. But for tech-driven companies with relatively less onerous cost structures than traditional players struggling with existing infrastructure, the risk-reward ratio can still be attractive.
National charters, of course, allow companies to operate nationally, with some uniformity of offerings. And in terms of meeting regulatory requirements, the process is streamlined. In an interview with PYMNTS, Mike Cagney, co-founder and CEO of Figure, told Karen Webster that with the OCC as the sole regulator, the company does not need to have separate licenses in each state to y. operate. Winking at the regulatory complexities inherent in running a business without this charter, he said that “we will have over 200 state licenses next year for mortgage origination, consumer lending. unsecured, money management and issuer. licenses.
As the pandemic subsides, we may see an increase in the number of business banking apps aimed at consumers who want to bank on all platforms and mobile devices.
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