TFU | May 6-12, 2017

Leading Off

SoFi intends to apply for an industrial loan company (ILC) charter in June, which, if successful, would make it the first new ILC in over 10 years; Chinese mobile payment giant Alipay partnered with First Data to enter the U.S. market; Citi invested in DLT firm Axoni; and The Economist looks at how data has become “the world’s most valuable resource,” and what that means for those regulating it.

The Big Idea

The OCC’s proposed “fintech charter” has had a rough month.

The story:  Next week, the Office of the Comptroller of the Currency’s (OCC) internal office innovation will host its first “office hours” event in San Francisco to help answer questions from innovative financial firms about regulations, charter options, and bank partnerships. The office hours were a notable feature of the innovation office’s creation when it was announced last October. Meanwhile, SoFi has decided to apply for a bank license… but not as we expected.

Why we care:  Despite moving forward with office hours, the OCC has hit a period of increased uncertainty regarding its innovation initiative: two weeks ago, the Conference of State Bank Supervisors sued the agency, challenging its authority to grant limited-purpose charters to fintech firms; and last week, President Trump replaced Comptroller Thomas Curry, the initiative’s champion.

What we think:   We’ve written before about the debate over the OCC’s proposed “fintech charter” (i.e., a limited-purpose national bank charter, which the OCC may consider granting to an innovative financial firm). The OCC’s decision to consider applications from fintech firms for a national bank charter was always somewhat controversial, but for a while it looked like things were proceeding relatively smoothly. Given the past few weeks, especially the OCC’s change in leadership, the charter’s future now seems more hazy.

This sentiment seems to be shared by online lender SoFi, which announced plans to apply for an industrial loan company (ILC) charter next month. ILCs are a type of state-chartered bank (currently available in only in seven states), that offer certain bank products and services (e.g., deposit-taking) and whose deposits are FDIC-insured. However, SoFi’s decision to seek an ILC rather than a national banking license is interesting. SoFi would be the first new ILC in over 10 years, following the end of a moratorium placed on ILC charters by the Dodd-Frank Act, but apparently the scrutiny and uncertain probability of success related to an ILC application is still preferable to the uncertainty surrounding an OCC charter. We will be watching with great interest as SoFi moves forward with its plan; if it is successful, it could represent a model for other bank-power-seeking fintech firms to follow… as well as another shot across the bow of the OCC.

In Other News…

Alipay partners with First Data to enter U.S. market.  China’s mobile-payments giant reached a deal with the U.S. payments service to allow Alipay users to shop at over four million U.S. merchants served by First Data. The deal means Alipay will have a similar payments terminal footprint to Apple Pay, which is accepted at roughly 4.5 million U.S. merchants.

Survey: More than ⅓ of Americans make P2P payments.  According to Bank of America, over 33% of Americans use P2P payment services like Zelle and Venmo to transfer money. Usage is especially prevalent among millennials, 62% of whom said they use P2P services.

Capital One partners with Xero on data sharing.  The bank signed a data-exchange agreement with the software firm, allowing Capital One customers to share their financial data with Xero’s cloud accounting products via API. The agreement is similar to ones signed earlier this year between Wells Fargo and Xero, as well as between JPMorgan Chase and Intuit.

Comey discusses criminal use of digital currencies…  Testifying before the Senate Judiciary Committee last week, now-former FBI head James Comey said that virtual currency increases the “challenge of identifying” criminals online.

…as the UN launches a cryptocurrency crime training program.  The United Nations (UN) Office on Drugs and Crime developed a program designed to train global law enforcement personnel on “[conducting] bitcoin tracing as a part of a wider financial investigation.”

New Hong Kong fintech reports.  The region’s Financial Services Development Council published two fintech research reports: one on the status and future of fintech in Hong Kong, and another on DLT and how Hong Kong can foster DLT-based companies and innovations. The FSDC championed both reports as important roadmaps to “a thriving FinTech sector” in Hong Kong.

Citi invests in DLT firm Axoni.  Axoni has led several prominent DLT initiatives for financial markets, including an “overhaul” of the DTCC’s systems to “handle post-trade processing of derivatives contracts over a distributed ledger.” The bank’s investment brought Axoni’s Series A round to over $20 million.

How to regulate the data economy?  As we’ve written about previously, the prevalence of connected devices and an ever-growing digital footprint has turned data into “the world’s most valuable resource,” as the Economist termed it this week. The Economist further argued that this abundance of data has changed corporate competition and how data should be regulated.

Have a great weekend!
Joe Oehmke and Austin Tuell

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