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Potential Impact on the Fintech Industry as a Result of the OCC Chartering Initiative and Increased Scrutiny of Third-Party Relationships for Banks.

What is the impact on the fintech industry of the new OCC Chartering initiative?

The Office of the Comptroller of the Currency (“OCC”) is embarking on a dual-track regulatory effort that may result in a comprehensive overhaul of the relationships between the fintech industry and regulated financial institutions. On the first track is the OCC’s proposal to allow fintech companies to obtain Special Purpose National Bank (“SPNB”) charters. On the second track is the OCC’s enhanced scrutiny of banks that partner with third-party entities, in particular fintech companies. This regulatory effort may alter the now-common practice of large financial institutions, including banks subject to OCC regulations, partnering with fintech companies. Specifically, agreements between banks and marketplace lenders for the purchase of loans originated through the marketplaces as a means of obtaining funding for additional lending on the marketplace.

As explored below, the calculus underlying these relationships may begin to change as the OCC and FDIC recently have moved to increase their oversight of the relationships between banks and fintech companies. The confluence of both increased regulatory oversight of bank relationships with fintech companies and the potential to use chartering as a means of alleviating regulatory scrutiny may cause banks to prefer certain institutions. Such bank preferences may lead some fintech companies to obtain a charter in order to obtain access to capital at competitive rates while causing other companies to tailor their operations to more discrete products and geographic locales.

The OCC’s Proposed Fintech SPNB Charter

In December 2016, the OCC released its paper Exploring Special Purpose National Bank Charters for Fintech Companies, which proposed that SPNB Charters would be available for certain eligible fintech companies. The release of this proposal has resulted in intensive speculation as to its impact on existing fintech business models and, as evidenced by a lawsuit filed in April 2017 by the Conference of State Bank Supervisors, the authority of the OCC to even issue SPNB charters.

In March 2017, the OCC furthered the SPNB process by releasing its draft fintech licensing manual. Under the proposed guidelines, the OCC will consider, among other things, whether the entity seeking a charter:

• has organizers and management with appropriate skills and experience;
• has adequate capital to support the proposed business, volume, and risk profile;
• has a business plan that articulates a clear path and timeline to profitability; and
• includes in its business plan, if applicable, a financial inclusion plan that has an appropriate description of the proposed goals, approach, activities and milestones for serving the relevant market and community.

Obtaining a SPNB charter likely will allow fintech companies to take advantage of certain privileges available to national banks. These privileges are perhaps most impactful for the marketplace lending industry, which may be allowed to assert the lending privileges of national banks to export interest rates and avoid state licensing requirements.

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More Stories By Ben Bradley

Known for wearing plaid and sweater vests before they were popular, Ben Bradley is managing director of Macon Raine, Inc. (www.maconraine.com) - a management consulting, marketing and demand generation firm for technology organizations. He is a graduate of the University of Iowa and was a member of the undergraduate Iowa Writer’s Workshop. His interests include the intersection of technology and marketing. Because he was never very good at sports and doesn’t have many hobbies, his primary interests include the role of marketing on internal technology adoption, micro-finance, military uses of technology and media, self-organizing networks, network and physical security, collaboration and groupware. He frequently lectures his children on a variety of topics. Bradley was raised in Wheaton, Illinois and currently resides in Glen Ellyn, Illinois with his wife, two children and a purebred Latvian Goathound named Stella.

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