The movement toward linkups between traditional financial institutions (FI) and FinTech firms seems an inexorable one — in the cross-selling of corporate services into consumer bases that embrace individuals and, typically, small- to medium-sized businesses (SMBs). Banks need the technology of FinTech companies, and tech upstarts need the conduit to customers and installed trust that comes with decades of relationships that span generations.
Then again, there’s the regulatory aspect that can add a bump or two in the road. In one case at the state level (and it’s New York, so movement there carries much weight within the financial arena), Bloomberg reported that NY’s financial regulator is challenging what the newswire terms a “fundamental principle” on bank and FinTech relationships that brings interest rate caps into that regulator’s crosshairs.
Late last week, the New York Department of Financial Services noted it “disagrees” that, in the aforementioned linkups, it is the traditional bank that is the lender — where that bank’s charter defines the usury limits. As Bloomberg reported, national banks are exempt from state-level dictates on usury limits. In the past (and the present), some online lenders have sought to help leverage that exemption as a way to avoid relatively lower interest rate limits. By way of example, the rate cap in NY on loans (less than $250,000) stands at 16 percent. Bloomberg noted that the non-mortgage lending last year — extended to consumers and small firms, done through NY-chartered entities — was $51 billion.
Lest one think that all banks want all-in on the digital revolution (and, thus, would be scrambling to bring FIs, APIs and any number of acronyms to bear on the traditional platforms), in Hong Kong, virtual banking is getting a bit of a sidewise glance, at least from one firm.
As reported last week, DBS Bank offers 34 branches in Hong Kong and, as stated in South China Morning Post, expects there might be “little to gain” from bringing a virtual bank to market. That statement comes contrary to the Hong Kong Monetary Authority’s (HKMA) move to bring virtual banking licenses to FIs, where, so far, dozens of companies have stated they are interested in the initiative — including, of course, a number of FinTech firms. Yet, noted the publication, only one traditional banking player in the region, Standard Chartered, has said it will apply for that license, and the deadline looms at the end of August.
As far as DBS is concerned, it has brought “tens of millions” of dollars of effort to bear on its own homegrown initiatives, with an eye on corporate banking services that allow smaller firms to conduct banking activities in the digital-real, complete with online ID verification.
However, looking elsewhere beyond U.S. shores, one will find another pairing between a traditional financial services firm and a FinTech. This time around, Mastercard is linking with Strands, a FinTech based in the EU, which focuses on a collaboration that brings to bear joint efforts on cash management and corporate payments — and is geared toward SMBs.
The firms said last week that artificial intelligence (AI) will be among the drivers behind offerings, which will help firms analyze financial positions and activities across, say, cash flow management and, in turn, recommend services on offers from banks. The duo will integrate Strand’s business financial management offering and Mastercard’s digital payments technology. In the wake of that debut, the joint solution will also bring Mastercard in Control, a commercial card spend management solution.