Monday, September 10, 2018
A federal bank regulatory agency is opening its charter approval process to financial technology firms, and a mobile banking startup appears to be the first to garner approval. The Office of the Comptroller of the Currency, the Treasury Department agency that oversees national banks, announced in late July that would begin accepting applications for "special purpose" charters from fintech firms. Just over a month later, on September 4, Varo Money Inc. announced it had received a preliminary okay for an OCC charter, putting Varo Bank N.A. on track to become the first all-mobile national bank in the country.
Colin Walsh, co-founder and CEO of Varo Money, said it is a historic moment that "marks the start of a new era in banking." Varo describes itself as combining "mobile technology with a mission" to provide consumers with no-cost bank accounts and automated savings tools. Founded in 2015 by Walsh and CTO Kolya Klymenko, Varo reported raising more than $79 million in funding from private equity firms.
"We founded Varo because we saw that banks weren't serving the majority of their customers very well, and we wanted to fix that," Walsh said. He pointed to a 2017 Federal Reserve report finding that 40 percent of adult Americans would be unable to cover an unexpected $400 expense without selling something or borrowing money. "So we decided to build a bank from the ground up with the goal of improving consumers' financial health through better technology and a more efficient business model," he added.
Jo Ann Barefoot , CEO of Barefoot Innovation Group, said, "This preliminary approval from the OCC is a signal that regulators recognize the value technology can bring to banking for all Americans," Barefoot is a former regulator herself. Following passage of the Community Reinvestment Act, in 1977, she was appointed the OCC's first deputy comptroller for consumer and community affairs. That put her in charge of overseeing bank compliance with that law, which required banks to do more to meet the credit needs of their local communities.
In recent years, Barefoot has focused on advising banks and others on leveraging technology to support better financial inclusion. "New technology can make the world look a lot more like the one CRA's sponsors originally hoped for," she explained in a recent blog post.
"The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America," Comptroller of the Currency Joseph M. Otting said in heralding the new charter application process. "Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank."
The OCC said allowing fintechs to apply for bank charters followed a two-year consideration process that included "extensive outreach with many stakeholders" and public comments on a proposed policy statement on regulating fintech banks. The agency also published a licensing manual for fintech companies interested in pursuing national bank charters.
National banks are full-service commercial banks that include some of the largest (think Bank of America, Citibank, Chase) as well as thousands of smaller banks (First National Bank of Anytown, U.S.A.). The OCC also has authority to charter limited purpose banks, such as credit card banks, trust banks and bankers banks.
In opening the new fintech charter route, the OCC stressed that fintechs will be regulated and examined the same as the thousands of other banks it oversees. An OCC charter isn't the only option for fintechs that want to be banks. They also can pursue state banking charters, state money transmitter licenses and partnerships with existing financial institutions, the OCC noted.
"Providing a path for fintech companies to become national banks can make the federal banking system stronger by promoting economic growth and opportunity, modernization and innovation, and competition," Otting said. "It also provides consumers with greater choice, can promote financial inclusion, and creates a more level playing field for financial services competition."
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