Some fintech companies are considering or pursuing bank charters, enabling them to compete more broadly and avoid having to address disparate regulatory requirements across individual states. Banks are also working to leverage their disruptive capabilities and meet the demands of tech-savvy consumers. Fintechs pride themselves on creating deep customer connections and navigating market trends agilely, and creating disruption for traditional competitors.
Fintech Risk and Rising Regulatory Voices
Recent fintech regulatory actions are illustrative of the regulatory action being taken today. They highlight regulatory, operational, and reputational risks that, in many respects, threaten the safety and soundness of a bank or other financial institution. Consumers expect regulatory protection associated with products and services that are bank-like, but delivered though non-traditional channels.
In 2016, the Office of the Comptroller of the Currency published a paper on its “vision for responsible innovation in the federal banking system”. This opened the door for fintechs to continue their pursuit of growth by working with regulators to develop solutions specific to the regulation of their product offerings. Acting Comptroller Keith Noreika has expressed strong support for the responsible innovation initiative.
Varo became the second fintech company to seek FDIC insurance, following Social Finance Inc. (SoFi), which filed an application with the FDIC in June. SoFi’s ILC application reignited a longstanding debate about the efficacy of this type of bank charter. The FDIC’s decision on granting new ILC charters could have major implications for the industry.
The Future of Fintech
Fintech companies can increase their potential for success by having solid risk management controls in place. Given increasing regulatory attention, a compliant company may well be more attractive to the public. That differentiation could open doors to market share and revenue growth. It might also give a level of comfort to a variety of stakeholders, including the consumers the company interacts with. Analysts who value the transparency and risk management practices of companies.
Regulatory and Operational Risk
Learn to lead, navigate, and disrupt to accelerate performance through effective management of regulatory and operational risks. Businesses today face complex regulations and often volatile operating environments. Turn the tide to protect and create value, and evolve regulations into opportunity by understanding how they affect you and your business.
