The OCC's Plan for Fintech and Banks

"The biggest difficulty in Fintech is predicting when the banking defenses begin to come down, as they realize they have to react to the fact that banking services are going to be delivered digitally. Those bricks are coming down one brick at a time, unfortunately, as opposed to the wall coming down. But they are coming down, and my advice is don’t burn all your money thinking you can knock the wall down. But if you’re sharp and pay attention, and you can tailor your product and spend to the right trajectory, you can pace it so as the bricks come down, you’re able to go over the top." - Pete Kight, VC, Founder of CheckFree

In 2014, financial technology (Fintech) start-up funding nearly tripled to more than $11 billion. It almost doubled again in 2015, reaching nearly $20 billion and bringing 800 new start-ups to the marketplace. 2016 began with almost 2000 start-ups in the space.[1] Those exponential rates, combined with the massive year over year growth of attendees and showcase companies at the annual financial services Money 20/20 Conference, implies that 2016 could be nothing short of monumental.

In addition to the number of companies and funding, the momentum of the Fintech industry is also seen in a tremendous amount of innovation. As Fintech industry innovations have flooded the marketplace over the past couple of years, many banks have had to take a reactive stance against the flood of innovations in an effort to sustain viability.

As stated in a February 2016 McKinsey report on the impact of Fintech on banking, “Absent any mitigating actions by banks, in five major retail-banking businesses—consumer finance, mortgages, lending to small and medium-size enterprises, retail payments, and wealth management—from 10 to 40 percent of bank revenues…could be at risk by 2025.”[2]

It seems that regulators have officially hit an inflection point. Now, the Treasury Department's Office of the Comptroller of the Currency (OCC) is looking for ways to take ‘mitigating actions’ and help level the playing field. And the countdown is on.

On May 31, 2016, the OCC will begin to update regulations for banks and Fintech companies. Recommending that banks and regulators keep a focus on working to strike a balance between risk and innovation, Thomas Curry, comptroller of the currency, said, "While banks continue to innovate, rapid and dramatic advances in financial technology are beginning to disrupt the way traditional banks do business.”

The host of expected reforms will include establishing an OCC office on innovation whose job it is to ‘to vet ideas before a bank or nonbank makes a formal request or launches an innovative product or service.’

In addition, the framework will address regulations related to third-party relationships like apps that rely on access to bank data, legal, auditing, and information technology companies. To date, some of the largest banks, including JPMorgan Chase, have restricted some apps' access to their networks. The effort is to bridge these relationships with an end goal of serving customers needs more effectively.

Not surprisingly, the framework is expected to have implications that reach from Wall Street to Silicon Valley. Fintech companies could benefit from banks’ historic ability to build and sustain valuable customer relationships. Banks could benefit from access to new ways of serving their customers.

The revolution is well underway, and the OCC framework may be the next step for regulators trying to help banks and Fintech companies to work together to serve customers in an even more data driven, efficient, secure and inclusive way than ever before. 

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[1] Fintech Regs Get Second Look at Treasury, CNBC, March 2016

[2] Cutting through the noise around financial technology, McKinsey & Co., February 2016