FinTechs Pursue Direct Connections to the Fed With National Trust Bank Charters

For several FinTechs, in the move to broaden scale and scope to a nationwide level, all roads lead to the Fed.

As has been reported in recent days, FinTechs including Wise, Ripple and Circle have applied to the Office of the Comptroller of the Currency (OCC) for national trust bank charters.

In doing so, should the applications be approved, the charters would allow these firms to sidestep the piecemeal approach of obtaining state-by-state licenses, and in other cases (as would be seen with Wise, which is based in the U.K.), relying on correspondent banking for cross-border money movement.

Without a charter in hand, the FinTechs would traditionally seek 50 state-by-state money transmitter licenses, or they could seek to own a bank (as has been seen with the likes of LendingClub) or become one.

The national trust bank charter, at a high level, sets the stage for FinTechs to operate under the scrutiny of a single regulator (the OCC), while branching out into banking services, such as settlement of transaction, with the exception of holding insured deposits or lending. Circle’s move to gain a national trust charter would enable the firm to offer those custody services.

The OCC’s Take

The OCC’s site lists roughly five dozen trust banks. And in a document from the Comptroller focused on national bank charters for FinTechs, the regulator notes that “the OCC views the National Bank Act as sufficiently adaptable to permit national banks—full-service or special purpose—to engage in new activities as part of the business of banking or to engage in traditional activities in new ways… with rare exceptions, all national banks, including insured and uninsured trust banks and other special purpose national banks, are required to be members of the Federal Reserve System.”

Seeking Direct Connections

Wise, with charter in hand, would be able to connect directly to the Federal Reserve’s payment rails to clear and settle U.S. dollar-based payments. It’s not farfetched to say the move has long been brewing: In a 2020 blog post, Wise had said that “Fed access for payments companies is smart policy,” and contended that “payment companies rely on bank partners – often competitors – to access payment rails. That ultimately results in added costs to the customer and concentrates risk in a handful of the largest banks who process most payments.”

The direct access to the Fed would help bypass those middlemen that are a staple of the correspondent banking system, where cross-border payment fees, as estimated by the World Bank, stand at about 6.5%.

Public commentary period is open until July 18, per the general corporate application timeline.

And in another example of the quest for direct connections, as PYMNTS reported last week, Ripple subsidiary Standard Custody & Trust Company applied for a Federal Reserve master account as of the end of June. This account would enable Ripple to custody the reserves for its stablecoin with the Fed and issue and redeem stablecoins outside normal banking hours, per the report.