Fed wary of giv­ing fin­tech firms ac­cess to fi­nan­cial in­fra­struc­ture

The Philippine Star - - BUSINESS -

WASHINGTON (Reuters) — The US Fed­eral Re­serve is wary of giv­ing “fin­tech” firms such as OnDeck Cap­i­tal Inc. or Kab­bage Inc. ac­cess to the coun­try’s fi­nan­cial in­fra­struc­ture, putting the cen­tral bank at odds with other reg­u­la­tors look­ing to bring them into the fold.

The Of­fice of the Comptroller of the Cur­rency (OCC) and the Fed­eral De­posit In­sur­ance Corp. (FDIC) are ex­plor­ing grant­ing fed­eral bank-like li­censes to tech­driven firms that of­fer fi­nan­cial ser­vices, such as money trans­fers and lend­ing.

The plan is part of a broader push by Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion to boost small busi­nesses and pro­mote job growth. Fed­eral li­censes would al­low fin­tech firms, which cur­rently op­er­ate un­der a patch­work of state rules, to re­duce their reg­u­la­tory costs and ex­pand into new re­gions and prod­ucts.

How­ever, fin­tech firms say they are re­luc­tant to in­vest heav­ily in na­tion­wide ex­pan­sion with­out ac­cess to the pay­ment sys­tems, set­tle­ment ser­vices, and other Fed tools and the cen­tral bank has yet to de­cide whether to let those light­lyreg­u­lated play­ers in.

Many Fed of­fi­cials fear these firms lack ro­bust risk-man­age­ment con­trols and con­sumer pro­tec­tions that banks have in place.

“They prob­a­bly do want ac­cess to the pay­ments sys­tem, but they don’t want the reg­u­la­tion that would come with that ac­cess,” St. Louis Fed pres­i­dent James Bullard told Reuters in Novem­ber. “I am con­cerned that fin­tech will be the source of the next cri­sis,” he added.

Com­pa­nies such as PayPal and Lend­ingClub Corp. have at­tracted mil­lions of cus­tomers by of­fer­ing greater con­ve­nience or bet­ter prices than tra­di­tional banks. The OCC and the FDIC say such firms can broaden ac­cess to fi­nan­cial ser­vices be­cause their low-cost mod­els al­low them to reach poorly served ar­eas and of­fer small loans that are un­eco­nom­i­cal for big­ger banks.

But some fin­tech firms say they would be re­luc­tant to in­vest the time and re­sources in ap­ply­ing for and main­tain­ing the new OCC fin­tech li­cense un­less the Fed gives them ac­cess to the pay­ments sys­tem, so they will not have to de­pend on banks to route money for them. Di­rect ac­cess would elim­i­nate bank rout­ing fees, a top­five op­er­at­ing cost for many fin­tech firms, and would al­low them to com­pete more ef­fec­tively with tra­di­tional lenders.

“It’s hard to know if it’s worth­while ap­ply­ing if you don’t know what ac­cess you’d have to the Fed ser­vices,” said Ja­son Ox­man, CEO of the Elec­tronic Trans­ac­tions As­so­ci­a­tion, which rep­re­sents fin­techs and banks. “It would be help­ful for the Fed to clar­ify.”

Banks are push­ing back, ar­gu­ing fin­tech firms should ac­cess the Fed sys­tem only if they com­ply with the same rules banks face.”You don’t want a new char­ter that skirts ex­ist­ing rules and reg­u­la­tions and call that in­no­va­tion,” said Paul Mer­ski, ex­ec­u­tive vice pres­i­dent for the In­de­pen­dent Com­mu­nity Bankers of Amer­ica.


The PayPal and An­droid Pay apps are seen on a mo­bile phone in this il­lus­tra­tion photo.

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