Charter, Partner or Get Left Behind

Published: July 27, 2021 by Kim Le

If it looks like a bank and acts like a bank, there’s a good chance the company behind that financial services transaction may not actually be a bank – but a fintech. Born out of Silicon Valley, New York and tech hubs in between, fintechs have been categorically unfettered from regulation and driven by a focus on customer acquisition and revenue growth. Today, the fintech market represents hundreds of billions of dollars globally and has been disrupting financial services with the goal of delightful customer experiences and democratizing access to credit and banking. Their success has led many fintechs to update their strategy and growth targets and set their sites outside of core banking to other sectors including payments, alternative lending, insurance, capital markets, personal wealth management, alternative lending and others. Depending on the strategy, many are seeking a bank charter, or a partnership with a chartered financial institution to accomplish their new growth goals.

Meanwhile, all this disruption has caught the attention of banks and credit unions who are keen to work with these marketplace lenders to grow deposits and increase fee-revenue streams. Historically, obtaining a bank charter was an onerous process, which led many fintechs to actively seek out partnerships with financial institutions in order to leverage their chartered status without the regulatory hurdles of becoming a bank. In fact, fintech and FI partnerships have boomed in the last few years, growing more than five times over the past decade. Gone are the days of the zero-sum game that benefits solely the bank or the fintech. Today, there are more than 30 partner banks representing hundreds of fintech relationships and financial services. These partnerships vary in size and scope from household names like Goldman Sachs, which powers the Apple credit card, to Hatch Bank, which has $68 million in assets and started with a single fintech partner, HM Bradley.[1]

But which scenario is right for your fintech? Much of that depends on which markets and lines of business round out your growth strategy and revenue goals. Regardless of what framework you determine is right for your fintech, you need to work with partners who have access to the freshest data and models and a firm handle on the regulatory and compliance landscape.

Experian can help you navigate the fintech regulatory environment and think through if partnering with a bank or seeking your own fintech charter is the best match for your growth plan. In the meantime, check out this new eBook for more information on the bank charter process and benefits, fintech-FI partnerships and the implications of the Office of the Comptroller of the Currency (OCC) new fintech charter.

Read now Explore Fintech solutions

[1] https://a16z.com/2020/06/11/the-partner-bank-boom/

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