Weekly Update

TFU | Sept. 11 – 17

The OCC says it’s not ready for fintech applications; the CFPB approves its first no-action letter; Cagney steps down from SoFi amid scandal; China bans crypto exchanges; and what’s the Big Idea with open banking?

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Leading Off

Acting Comptroller of the Currency Keith Noreika said the OCC is not yet ready to accept “fintech charter” applications; the CFPB issued its first-ever no-action letter; SoFi CEO Mike Cagney stepped down after reports describing his role in creating a culture of sexual harassment and discrimination at the firm; China banned domestic digital currency exchanges; the U.K. FCA issued a warning about participating in ICOs; and Venmo is beta-testing debit cards for selected users.

The Big Idea

Open banking is becoming increasingly notable.

The Story:  Last week, McKinsey published a paper on the emergence and regulatory dimensions of open-banking initiatives, one of the key drivers of fintech growth over the past several years. The paper highlights that open banking (i.e., sharing customers’ bank data with third-party services via API), has reached a “fever pitch,” and argues that banks should embrace the trend or risk losing business.

Why We Care:  We’ve written before about issues related to open banking and APIs; it’s an issue that implicates a number of different considerations including data ownership and control, privacy, data security, and balancing the data needs and limitations of incumbent banks and upstart fintech firms. These are difficult questions with potentially significant public policy and financial implications, and consumers should be aware of the ongoing debates over them.

What We Think:  The McKinsey piece is worth a read — it’s a good primer on open banking and regulatory developments in different jurisdictions (e.g., the U.K.’s Open Banking Initiative), and broadly outlines the competing considerations at play. And it’s timely — open banking is having a moment. Last week alone, we saw stories about one more bank partner in Intuit’s growing stable, Starling’s new Marketplace platform, and Macquerie’s API initiative. Add to them the numerous similar stories written about technology and finance companies in recent months, as well as regulatory responses around the world, and a bigger picture emerges:

Institutions around the globe, big and small, public and private, banks, fintechs, and tech companies, are investing significant time and money in establishing open banking and API initiatives. This portends a future of greater financial connectivity for consumers, but also raises serious concerns about data protection, security, and responsibility. It also means that companies may be facing an “adapt or die” moment. We’ll be interested to see whether that’s the case, and what kind of marketplace those adaptations ultimately yield.

In the News

OCC not ready to accept “fintech charter” applications. Acting Comptroller of the Currency Keith Noreika said that the agency is “not yet ready to accept applications” from fintech firms seeking special-purpose national bank charters. “We want to just talk to these companies to [understand their] business line[s] before we entertain applications,” Noreika said.

CFPB issues first no-action letter. The Consumer Financial Protection Bureau (CFPB) issued its first-ever no-action letter to online lender Upstart [full text]. The letter indicates that the CFPB does not intend to take legal action against the firm on Equal Credit Opportunity Act grounds related to Upstart’s “non-traditional” model for underwriting and pricing loan applicants.

Mike Cagney leaves SoFi after reports of sexual misconduct. The online lender’s CEO and co-founder stepped down after several reports of “gender-related discrimination and harassment,” including a particularly damning story in the New York Times. Fast Company’s Ainsley Harris argues that a lack of female representation among SoFi’s leadership “set the stage for harassment and misconduct” at the company, and that a similar lack of gender diversity pervades the fintech industry generally.

Goldman sees greater role for fintech business. Goldman Sachs indicated to investors [full presentation] that it thinks its online consumer lending platform, Marcus, can generate as much revenue as its securities trading business (“$1 billion in extra revenue over the next three years”). The bank expects to have lent $2 billion in consumer loans by the end of this year.

China bans digital currency exchanges. A week after outlawing ICOs, the Chinese government said it would ban domestic digital currency exchanges. Shortly after, one of China’s largest online exchanges, BTC China, said it would stop handling trades by the end of the month. Global Bitcoin prices fell to their lowest levels in a year on the news.

FCA issues warning on ICOs. The U.K.’s Financial Conduct Authority (FCA) issued a warning about initial coin offerings (ICOs), noting that “ICOs are [a] very high-risk, speculative investment” that could leave investors with nothing. Regulators in the U.S., China, Singapore, and Hong Kong also have addressed ICOs in the past month.

Equifax hack included details of over 200,000 credit cards. This month’s Equifax hack reportedly exposed the card details of over 200,000 Visa and Mastercard customers. Overall, the Equifax breach allowed hackers to access the personal information of approximately 143 million U.S. consumers.

EU aims to enhance fintech status. European Union (EU) finance ministers discussed how to increase the continent’s attractiveness to fintech companies, many of which are based in London, in anticipation of the U.K.’s expected exit from the EU by 2019.

U.K. fintechs launch Brexit-related industry group. A number of U.K. fintech firms, including TransferWise, Funding Circle, and Monzo, created the Fintech Delivery Panel (FDP) to help prepare for the industry’s future post-Brexit. The FDP has called on the U.K. government to “protect access to talent and capital . . . [and] international markets.”

Venmo tests free debit card program. The payments firm is inviting selected users to test a free debit card linked to their Venmo accounts, which would allow them to pay with Venmo in stores and online as they would with a typical credit or debit card.

Jamie Dimon voices strong opinion on digital currency. The J.P. Morgan CEO was critical of the digital currency phenomenon during an interview, stating that “it’s just not a real thing, [and] eventually it will be closed.” “It’s worse than tulip bulbs,” Dimon continued. “It won’t end well.

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