As FinTechs eye growth, and look to gain scale by providing more “mainstream” financial services, might those plans hit a speed bump when it comes to the infrastructure needed to bring products to the masses?
Reuters reported early Monday (Jan. 14) that the Federal Reserve, the U.S. central bank, is getting a bit worried about sharing some of the financial infrastructure with tech upstarts such as OnDeck Capital and Kabbage, a sense of caution that the newswire said puts the bank “at odds with other regulators looking to bring [those firms] into the fold.”
As has been reported, the regulators include the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., which have been looking into the ways that licenses and charters can be granted to FinTechs to help them offer lending and other services nationwide. Those regulators state that such services can be brought to thus-far underserved areas, and might boost lending to small businesses.
There of course needs to be access to the financial infrastructure that underpins offerings and is part of processes as far-flung as settlement of transactions.
Yet now, said Reuters, the Fed has said there is not enough risk management in place to allow FinTechs full-fledged access to the payment system. As the St. Louis Fed President James Bullard told Reuters in November, the FinTechs “probably do want access to the payments system, but they don’t want the regulation that would come with that access. I am concerned that FinTech will be the source of the next crisis.”
Against that backdrop, FinTechs are wary of embracing the charter/licensing process – and shouldering the attendant costs – without having direct access to the payments system, which in turn would allow them to cut at least some operating costs, such as routing fees.
“It’s hard to know if it’s worthwhile applying if you don’t know what access you’d have to the Fed services,” said Jason Oxman, CEO of the Electronic Transactions Association, which represents FinTechs and banks. “It would be helpful for the Fed to clarify.” Fed officials, continued Reuters, are reluctant to offer such guidelines, as cyber risks are of concern and may harm consumers and the system itself.
In Asia, Examining Cross-Border FinTech
Separately, as reported late last week by Xinhua, the Hong Kong Monetary Authority has held a “high-level roundtable” focused on ways to boost FinTech across borders. The meeting, titled “Mutual Understanding to Global Collaboration,” was attended by 45 senior representatives, and was geared toward several jurisdictions and sectors spanning 30 central banks and/or authority authorities.
"One of the key characteristics of FinTech is that it is borderless," Xinhua quoted HKMA Deputy Chief Executive Howard Lee as saying, along with commentary that cross-border issues will gain importance. "It is therefore crucial that we deepen mutual understanding and step up global collaboration to ensure a well-functioning financial system," he said, adding that the HKMA will continue to foster cross-border FinTech collaboration and facilitate the creation of a conducive ecosystem for FinTech innovation.
Separately, Al Bawaba reported that FinTech collaboration between the U.K. and the Gulf will be on the agenda this week as the Lord Mayor of London Peter Estlin visits a number of cities in the region. The mayor will visit Kuwait City, Abu Dhabi and Dubai, aiming to strengthen trade and investment ties. He will meet with investors including the Kuwait Investment Authority and the Abu Dhabi Council. The UAE and Kuwait are markets worth multi-billions of British pounds’ worth of services from the U.K.