At a time when the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. are looking at giving federal bank licenses to FinTechs, the Federal Reserve isn’t keen on giving them access to the financial infrastructure.
Reuters, citing FinTechs, reported that while the White House wants FinTechs to be granted banking licenses as part of a broader plan to increase small businesses and job growth, FinTechs told Reuters they aren’t keen to invest in expansion in the U.S. if they don’t have access to the payment systems, settlement services and other Federal Reserve resources that the Fed has yet to decide if it should let FinTechs access.
Officials at the Fed are concerned that the FinTechs don’t have the strong risk management controls and consumer protections in place that the banks have. “They probably do want access to the payments system, but they don’t want the regulation that would come with that access,” St. Louis Fed President James Bullard told Reuters in November. “I am concerned that FinTech will be the source of the next crisis.”
The OCC and FDIC differ from the Fed, saying that FinTechs like PayPal and LendingClub can broaden financial services access because they have low-cost structures that enable them to go after underserved markets and offer small loans that don’t make financial sense for the larger banks. But some of the FinTechs have said that without access to the payments systems from the Fed, they are reluctant to invest in applying for and maintaining the OCC license. If they had direct access, Reuters noted, it would get rid of bank routing fees, which is a big cost for many FinTechs.
“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, in the Reuters report. “It would be helpful for the Fed to clarify.” OCC spokesman Bryan Hubbard told Reuters that its license offers lots of benefits for FinTech firms, which can partner with banks that in turn can access Fed services. The OCC expects to award the first national license in the early part of 2019.