THE OCC TO ACCEPT FINTECH APPLICATIONS FOR BANKING CHARTERS: The US Office of the Comptroller of the Currency (OCC) has announced that it will start accepting applications for its special purpose national bank charter, also known as its fintech charter. A successful application would allow fintechs to pay checks, lend money, and hold deposits. The federal banking system has to evolve if it wants to meet the changing needs of customers, according to Comptroller of the Currency Joseph Otting. By allowing fintechs to apply for special purpose national bank charters, the OCC aims to give more options to consumers. The OCC has been evaluating this decision for two years, suggesting this is a thought-out choice from the regulator. Additionally, the OCC’s decision was backedby the US Department of the Treasury in its fintech report.
- Not every fintech will be a successful applicant. The OCC will evaluate every application on its own facts and circumstances, meaning that success will depend on the business model of the fintech. Once accepted, those fintechs will be supervised similarly to other national banks. They will also have to provide the OCC with a contingency plan to ensure they can continue to operate during times of financial stress.
- However, fintechs that become special purpose national banks will be subject to more supervision at the beginning. Initially, these special purpose national banks will be supervised more than conventional banks, in a similar way as de novo banks (newly chartered banks) are. This should reassure those who have been opposed to a fintech charter — the OCC has been sued twice due to worries about how a fintech charter could affect financial stability.
This gives fintechs a new option to get into banking. Fintechs have limited options in the US to behave as fully functional banks, and many have had to opt to partner with already established ones. Additionally, they can apply for an Industrial Loan Company (ILC) licenses, which allow companies including fintechs to move into banking, but none of these have been granted since they were restricted in 2010. Being able to apply for the new fintech charter will provide many fintechs with an opportunity to provide a full suite a banking solutions. This means we could see more fintechs acting as banks in the US, resulting in more competition in the space. For example, Square, which recently withdrew its ILC application, may look to apply for a fintech charter instead.