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Table of Contents

Lead Story

The changing face of fraud

Ann Train

News

Industry Update

Advocates, detractors at odds over CFPB

IBM, Visa tackle IoT security

OCC enters uncharted fintech waters

Views

Consumers trust bank security, regulators not so much

Patti Murphy
ProScribes Inc.

Focus to leave uptightness behind

Steven Feldshuh
Merchants' Choice Payment Solutions East

Education

Street SmartsSM:
The Wolf of Sterling Heights, Michigan?

John Tucker
1st Capital Loans LLC

Small businesses: The most valuable B2B customer

O.B. Rawls IV
iPayment Inc.

The give and take of referral success

Jeff Fortney
Clearent LLC

Reset, revive your 2017 sales goals

Mike Ackerman
DigiPay Solutions Inc.

Company Profile

Billing Tree Inc

New Products

Versatile iPad POS, business management system

RevelGuard
Revel Systems Inc.

Cloud-based payment automation for B2B merchants

Nvoicepay
Nvoicepay

Inspiration

Apathy, be gone!

Departments

Letter From the Editors

Readers Speak

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

March 13, 2017  •  Issue 17:03:01

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OCC enters uncharted fintech waters

While industry experts agree the Office of the Comptroller of the Currency's proposal to consider granting fintech bank charters has broad implications for the banking industry, they disagree on what those implications are. The proposal was set forth in the OCC's December 2016, white paper, Exploring Special Purpose National Bank Charters for Fintech Companies.

Critics say the granting of fintech bank charters could hurt startups and consumers. Advocates say it would promote innovation and financial inclusion. A number of financial analysts believe supporters and detractors are separated by political fault lines, with Democrats and state governments among the most vocal opponents.

Caution urged

In a letter to U.S. Comptroller Thomas J. Curry, U.S. Sens. Sherrod Brown, D-Ohio, and Jeff Merkley, D-Ore., who serve on the Banking, Housing, and Urban Affairs Committee, suggested the OCC's proposal could harm consumers, stifle innovation and threaten financial stability. They shared concerns about the paper's language and "loosely defined" criteria.

"While we share your goal of ensuring that affordable banking products are more accessible, we are concerned with the OCC's proposal to expand its powers by chartering non-bank institutions," they wrote. "Offering a new charter to non-bank companies seems at odds with the goals of financial stability, financial inclusion, consumer protection, and separation of banking and commerce that the OCC has upheld under your tenure."

The senators noted language in the OCC's proposal goes beyond the scope of accommodating fintech firms by including marketplace lenders, financial planners and wealth management firms as potential recipients of alternative nonbank charters. They added this runs contrary to the OCC's narrowly defined authority "to charter only three specific types of special-purpose national banks" that do not accept deposits: bankers' banks, credit card banks and trust banks.

New York State Financial Services Superintendent Maria T. Vullo stated the OCC's proposal would bypass state consumer protection laws and create "regulatory arbitrage." New York's Department of Financial Services is better equipped to regulate "cash-intensive nonbank financial service companies" by providing strict oversight and enforcing anti-money laundering, consumer identification and transaction monitoring, she stated.

Vullo's opinions are reflected in a Jan. 13, 2017, comment letter to Comptroller Curry from the Conference of State Bank Supervisors, representing 50 U.S. states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands. The CSBS feels the OCC would be overstepping its authority by issuing a new type of charter that would distort the financial services marketplace and create uncertainty and risks pertaining to government resources, while limiting the states' ability to protect consumers.

Access to capital emphasized

Advocates see the granting of fintech charters as both welcome and inevitable. Scott Talbott, Senior Vice President of Government Affairs at the Electronic Transactions Association, said fintech has made financial services accessible through mobile and online apps and a range of free and low-cost digital services. In a Jan. 17, 2017, letter to Comptroller Curry, Talbott wrote, "It's clear that online small business lending is reaching a broad market, and that providing quicker access to capital allows small businesses to invest in their employees, purchase more inventory, expand their services, and ultimately grow their businesses."

NYPAY, a professional networking group, hosted a panel discussion Feb. 21, 2017, to further explore the issue. David True, payments industry consultant and NYPAY President, said the discussion was intended to expand on the OCC's proposal, which continues to evolve in response to the new administration and proposed changes to the regulatory environment.

The panel, moderated by Tom Scanlon, Counsel at Davis, Wright, Tremaine LLP and former Senior Counsel for the U.S. Department of the Treasury, included Andrew Lorentz, Partner at Davis, Wright, Tremaine; Kathy Tomasofsky, Director at Money Services Business Administration; and Stuart Sopp, Chief Executive Officer of Current.

Thorough vetting needed

Panelists noted the OCC was established in 1863 as part of the national banking system under the National Currency Act. It brought cohesiveness to what had been a fragmented approach to banking and ultimately helped the Union finance the Civil War. Taking steps to steady the financial system through good times and bad and weathering the challenges each era has brought, the OCC launched a framework for responsible innovation in 2016.

While praising the OCC for staying attuned to the evolving payments landscape, panelists noted its white paper recommended bringing fintech under uniform supervision, without providing an overarching definition for fintech. The white paper stated firms applying for a special charter would need one of three qualifying criteria: it would have to receive deposits, pay by check or debit cards, or lend money.

"Under the current administration, there is a lot of open agenda to address fintech issues but little specificity," Tomasofsky said. "The House and Senate will be approving and consolidating bills and rolling back regulations in conjunction with the Congressional Review Act and Financial Choice Act."

Pointing to the numerous open questions about fintech charters, a changing regulatory environment and uncertainties about the incoming Comptroller, panelists agreed the OCC's fintech application process may not be the best vehicle for a startup that wants to get to market quickly.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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Spotlight Innovators:

North American Bancard | Harbortouch | USAePay | Humboldt Merchant Services | Impact Paysystems | Electronic Merchant Systems