Senators Sherrod Brown and Jeff Merkley questioned the OCC’s authority to consider national bank charter applications from fintech firms; both DTCC and SWIFT are developing new blockchain initiatives; China’s state-backed banks are joining Alipay and Tencent in the battle for Chinese digital payments market share; and Funding Circle announced it secured $100 million in new equity funding.
The Big Idea
Senators voice opposition to OCC “fintech charter.”
The story: Sens. Sherrod Brown (D-OH) and Jeff Merkley (D-OR), submitted a letter to the Office of the Comptroller of the Currency (OCC) about the agency’s plan to consider national bank charter applications from fintech firms. The senators questioned whether the the agency has the authority to do so, and suggested that charters would allow fintech firms to avoid certain state and federal rules.
Why we care: The OCC’s decision to move forward with considering charter applications from fintech firms was a significant development after months of will-they-or-won’t-they speculation. The opportunity to get a bank charter has stirred plenty of interest among fintech firms, but there are also detractors who suggest that bank charters would subject fintech firms to less stringent supervision and allow them to sidestep state and certain federal laws. The addition of two powerful Senate voices to the fray gives more attention to that argument.
What we think: It’s no coincidence that the most significant opposition to the fintech charter announcement has come from community banks and state regulators, both of which could stand to lose if the OCC begins granting fintech charters. Federal preemption of state laws is a real thing, but the OCC has repeatedly confirmed that fintech firms with bank charters would be held to all state and federal laws applicable to any other uninsured special-purpose national bank. Moreover, federal rules and OCC oversight would subject fintech banks to regulatory requirements that are, in many ways, more stringent than those with which they currently comply. The costs and benefits of fintech charters certainly deserve conversation, but the issue of regulatory applicability seems fairly well addressed. Keep in mind that the community banks don’t like the idea of more competition from buzzy fintech firms (now with bank powers!); and state chartering authorities don’t want to see potential applicants choosing to go with the OCC instead, depriving them of attention and new sources of revenue.
In Other News…Chinese banks move into mobile payments. China’s mobile-payments market, the world’s largest, is dominated by fintech platforms Alipay and Tencent’s Tenpay, which together control 89% of the market. Now, “through a combination of new regulation and [new] platforms,” China’s state-backed banks are wading into the battle for marketshare.
DTCC to use blockchain-based tracking system. The Depository Trust & Clearing Corp. (DTCC) announced that it will implement a new blockchain-based tracking system to monitor “credit derivatives payouts between big banks.” DTCC chief executive Michael Bodson described the project as a “tangible step into . . . a very different future for Wall Street.”
SWIFT developing blockchain app for cross-border payments. The Society for Worldwide Interbank Financial Telecommunication’s (SWIFT) new initiative is designed to “synchronize [its] databases in real-time, so that banks can optimize their liquidity globally.”
New administration to hold private meetings on cyber preparedness. The Trump team announced it will hold private meetings with companies on cybersecurity preparedness. The meetings will be coordinated and led by Rudy Giuliani.
Bitcoin and Paypal were used to finance terrorism in Indonesia. The Indonesian government said Islamic militants “used bitcoin and online-payment services such as PayPal to fund terrorist activities in Indonesia.”
Funding Circle raises new $100M round. The London-based online marketplace lender, which focuses on small business finance, secured a new $100 million equity investment.
Circle’s co-founders discuss expansion, smart contracts. Circle co-founders Jeremy Allaire and Sean Neville joined the “Payments on Fire” podcast to discuss Circle’s geographic expansion as well as Spark, the firm’s new open-source smart-contract platform.
Joe and Austin