Why OCC’s Fintech Charter Is A Game Changer

December 5, 2016 at 9:20 am 2 comments

Its the end of the world as we know it whether we realize it or not.

On Friday, The OCC announced that it had the power to grant bank charters to financial technology companies and was going to use it.   Specifically, it explained that fintechs could apply to operate “special purpose” banks.

It laid out the case for its legal authority but invited the public to comment on the issues involved as it moves forward.  Needless to say, the CU industry should weigh-in.

How big a deal is this? Time will tell but think of it this way: When Apple introduced Apple Pay it had to partner with banks and credit unions that were willing to use its technology to facilitate payment transactions.  Now, with the OCC moving forward with its plans, the Apples of the world can simply become  special purpose banks so long as they engage in at least one of three “core activities” receiving deposits, paying checks, or lending. 12 C.F.R. § 5.20.

It’s not just the big guys who are going to benefit. Credit unions now meet with vendors anxious to interest them in technology that can do everything from instantaneously underwrite loans to facilitating quicker payments to making toast for members.  These startups need your business to get to consumers.   Now they will have the option of competing against you rather than partnering with you.

As the Comptroller explained in his remarks “Many fintechs will choose to partner with existing banks or provide services to banks and other financial companies, but some will seek to become a bank. In those cases, it will be much better for the health of the federal banking system and everyone who relies on these institutions, if these companies enter the system through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed.”

The OCC’s announcement is also  likely to set off  a mad scramble among state regulators. After all, why should states give the federal government a monopoly over an entirely new type of financial institution?

As for credit unions, the OCC’s move demonstrates yet again why they need more FOM flexibility.  When everyone is connected in a virtual community limiting CU’s  to physical boundaries makes no sense.

All of this will, of course,  further accelerate changes to a financial landscape that are already affecting  the way your credit union does business and against whom it is competing.  Good luck.

Entry filed under: General, technology. Tags: , .

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2 Comments Add your own

  • 1. new york's state of mind  |  January 17, 2017 at 9:38 am

    […] lead, follow or get blown away;  nevertheless Consumer groups are weighing in in opposition to   OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking […]

  • […] industry can either lead, follow or get blown away;  nevertheless Consumer groups are opposing  OCC’s proposal to grant  special purpose charters to tech companies that want to provide limited banking […]


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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