A report recently published by Moody’s underscores growing interest in obtaining a federal banking charter. For years, very few companies have tried to obtain a banking license, but the transition to digital finance and the desire to offer direct banking services have forced more institutions to apply for this license.
Although it is a very time-consuming and meticulous process, the report demonstrates the importance of having a bank charter. Provides an opportunity to improve funding bases by providing access to stable, low-cost deposits that can be credit positive. Bank deposits can reduce a firm’s lending costs, thereby increasing profitability.
Tighter regulatory oversight and the time and money required to comply is the other side of the equation.
Establishment banks have been complaining for years that Fintechs are providing the same or similar services without the burden of regulation, but now they’re getting what they want: more competition.
Some Fintechs become federally chartered banks by acquiring an already chartered bank, while others are going through the approval process. SoFi And Lending Club Two good examples of Fintechs acquiring an already approved bank.
Other Fintechs awaiting applications include: PayPal, Confirmation, Getting StartedAnd Revolution.
There are established financial services firms that have been approved or are in the process of gaining approval, which are not necessarily a full-service bank operator.
The winners should be consumers and small businesses who have more options for holding, moving and earning money. This can also be a strategic advantage for Fintechs that do not have large physical locations. And of course, there are the digital asset/crypto firms that have been much maligned by legacy banks. With LAW OF CLARITY Competition for deposits and banking services, which is set to become law, will intensify rather than decrease.
Moody’s statement is as follows:
“Rapid technological innovation and changing regulatory policies are leading to greater convergence in the financial services industry.”
