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Report: Fintech Companies Suffer Banking Setback

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Report: Fintech Companies Suffer Banking Setback

Financial technology companies looking to assume roles banks play experienced a major setback this week.

What Happened

Fintech companies can no longer count on regulatory support from a special bank charter from the Office of the Comptroller of the Currency, which created a smoother path to become a bank, CNBC reported Thursday.

A federal district court in New York concluded this week that the regulatory body lacks the legal authority to issue such a charter.

The charter briefly granted fintech companies the ability to oversee lending or payment products without having to accept FDIC insurance or comply with state specific banking laws, according to CNBC.

Related Link: Access To Business Capital Is Slipping, Except In Fintech

Why It's Important

Finance startup companies will now be forced to take the traditional — and drawn-out — process to become a bank.

The process can take up to two years and marks a "step back" for the industry, Lindsay Davis, fintech analyst at CB Insights, told CNBC.

Similarly, the venture capital community was "excited" when fintech companies were given an easier path to expand, according to Propel Ventures general partner Ryan Gilbert.

"A ruling like this slams on the brakes," Gilbert said.

What's Next

The recent ruling on the fintech charter will likely prove to be a "setback" for fintech companies planning on an accelerated path toward becoming a bank, Varo Money CEO Colin Walsh told CNBC.

"There are no shortcuts to the process, nor should there be," he said. 

You can check out dozens of up-and-coming fintech companies at the fifth annual Benzinga Global Fintech Awards on Nov. 19 in New York City.

Posted-In: banks CNBC Office of the Comptroller of the Currency regulationFintech News Startups Media Best of Benzinga

 

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