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Dozens of technology and fintech companies, including Google and PayPal, have explored the option of applying for the Office of the Comptroller of the Currency (OCC)’s special-purpose national bank charter, according to sources familiar with the matter cited by the American Banker.
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The OCC started accepting applications for its fintech charter in August 2018, but we haven’t seen any company obtain a license since then or even apply for one. Of note, the OCC has had hundreds of meetings about the charter with companies, yet none of them have been fruitful yet.
Here’s what it means: Concerns about state regulators opposing the fintech charter, as well as the charter not providing companies with the right services, may be a deal breaker for some.
- State regulators opposing the OCC’s fintech charter is no secret. Legal battles have followed the OCC’s fintech charter for years. The OCC faced two lawsuits regarding the project in 2017, but both were dropped since the charter was still hypothetical at the time and therefore wasn’t an actual threat. Since then, the Conference of State Bank Supervisors and the New York State Department of Financial Services have filed separate lawsuits to attempt to shut down the charter, as they argue it goes beyond the regulator’s authority. Hence, companies likely don’t want to waste their resources applying for a charter that might be banned in the future.
- Companies worry about harming existing relationships with state regulators by applying for the OCC’s fintech charter. Many tech and fintech firms have acquired licenses from various state regulators in the past, and they don’t want to harm these relationships, according to Thomas Curry, partner at Nutter McClennen & Fish LLP and the former comptroller, who called for the creation of the limited-purpose charter.
- Lastly, the OCC charter may not provide companies with what they’re looking for. The charter is limited, meaning that license holders would not be able to accept deposits, which is a key reason for companies to want to become licensed. To hold deposits, they’d still need to get a regular bank charter and face separate approval by the Federal Deposit Insurance Corp. (FDIC).
The bigger picture: It’s still early days for the license, and the first company to apply will be closely watched by the rest of the industry.
Tech and fintech companies have so far been unsuccessful in getting access to banking licenses in the US, and it seems like it will remain this way for the time being. US neobank Varo Money was the first digital-only bank in the country to be grantedpreliminary approval for a national bank charter from the OCC in September 2018.
Meanwhile, payments startup Square re-applied for a special industrial loan company (ILC) license in December 2018, after it withdrew its first application in July the same year. While the OCC’s fintech charter was supposed to make it easier for such firms to become licensed, interest will probably remain low as long as there are controversies around it.
The first company to apply will likely be a small player, as there’s less at stake for them, and the rest of the industry will closely watch how the process works out. For the time being, this is good news for smaller banks in the US, as they’ll face less competition from new entrants.
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