The world of fintech and banking is abuzz with the recent decisions made by the Office of the Comptroller of the Currency (OCC). This regulatory body has been at the forefront of shaping the future of financial technology in the US, and its recent actions have sent a clear message to fintech companies seeking a national bank charter. In this article, we'll delve into the implications of these decisions and explore what they mean for the industry.
The OCC's Stance on Fintech Charters
The OCC has made it clear that obtaining a national bank charter is not a mere formality for fintech companies. It requires more than just transplanting existing technology or replicating overseas banking models. Two recent rejection letters, one to Wise and another to Bunq, highlight the stringent standards set by the OCC.
Wise's AML/CFT Deficiencies
In the case of Wise, the OCC's decision centered on the company's ability to meet the rigorous anti-money laundering (AML) and countering the financing of terrorism (CFT) standards expected of federally chartered institutions. Wise US, the company's US payments operation, had previously acknowledged deficiencies in this area. The OCC's concern was whether a new bank, heavily reliant on Wise US and its global affiliates, could effectively address these issues.
Bunq's European Assumptions Challenged
For Bunq, the OCC's decision was a wake-up call to avoid importing assumptions from the European market. Bunq's proposal to bring its digital-bank model to the US was met with skepticism regarding its capitalization and credit loss projections. The OCC questioned the adequacy of Bunq's budget for acquiring customers in the competitive US card market and the experience of its management team in the US unsecured-card space.
A Trend or an Exception?
While these rejections may seem discouraging, it's important to note that the OCC also granted preliminary conditional approval to Upstart Bank just days after denying Wise. This contrast suggests that the OCC is not categorically against fintech charters but rather emphasizes the need for thorough preparation and compliance.
Implications for Fintech Applicants
For fintech companies still awaiting decisions on their charter applications, the Wise and Bunq cases provide valuable lessons. Here are some key takeaways:
Demonstrate Experience: Fintech applicants must showcase management's experience with the specific US products they plan to offer. The OCC expects a deep understanding of the US market and its regulatory environment.
Documented Capital and Loss Assumptions: Simply revising projections is not enough. Applicants must provide thorough analysis and evidence to support their financial assumptions.
Address Compliance Weaknesses: Any existing compliance issues, especially related to AML/CFT, must be resolved at the enterprise level before seeking a national bank charter.
Ready to Operate as a Bank: The proposed bank should have the necessary people, controls, and infrastructure in place to function as a fully compliant financial institution from day one.
Looking Ahead
The OCC's recent decisions have set a precedent for fintech companies aspiring to enter the US financial services market. While the path to obtaining a national bank charter may be challenging, it is not impossible. By learning from the experiences of Wise and Bunq, fintech applicants can better prepare their applications and navigate the regulatory landscape. As the fintech industry continues to evolve, the OCC's role in shaping its future remains crucial, and we can expect further developments and insights in the coming months.
In my opinion, the OCC's approach strikes a balance between encouraging innovation and maintaining the integrity of the financial system. It sends a clear message to fintech companies: show your work, demonstrate your readiness, and the OCC will consider your application seriously. This is a fascinating development, and I look forward to seeing how the fintech landscape evolves in response.
