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The week in fintech: With OCC charter, fintech de novo targets mobile banking

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The week in fintech: With OCC charter, fintech de novo targets mobile banking

This recap features updates on bank technology, payments, online lending and other news in the U.S. financial technology space. Send tips, ideas and chatter to rachel.stone@spglobal.com. For other recent fintech news, click here.

Competition in banking continues to heat up as financial technology entrants enter the fray — including by obtaining a full national bank charter.

The Office of the Comptroller of the Currency approved Varo Bank NA's application for a charter, putting Varo Bank on the path to becoming the first completely mobile national bank. It joins a wave of digital banks that are now challenging traditional branch network banks and vying for their customers.

Varo Money, the banking technology company affiliated with Varo Bank, currently offers customers a mobile banking app with a checking account and ATM access through a partnership with The Bancorp Inc.

Varo Money Inc. co-founder and CEO Colin Walsh in an interview declined to say how many customers Varo Money has. But it has seen twice as many customers and 10x as many savings accounts opened as Walsh anticipated, he said.

Walsh called the preliminary approval from the OCC the biggest hurdle for Varo to jump. It was a "watershed moment" for the banking industry, he said. Varo was the first fintech to apply for a national charter, and there was "a lot of learning" for the company's management and for the OCC during the application process, Walsh said.

He warned that the process is "rigorous," even if it may be easier now that Varo Bank has paved the way.

Varo Bank's full-service national bank charter is just one avenue fintechs have to enter the banking space. Social Finance Inc. applied for an industrial loan company charter, or ILC charter, in June 2017 before pulling its application amid a leadership shakeup. Square Inc. applied for an ILC charter in September 2017.

The OCC also recently released its special purpose national bank charter for fintech companies. But Square, which had withdrawn its bank application to improve some aspects of the filing, is still committed to pursuing becoming an ILC rather than the OCC's charter, said Chris Massey, head of governmental relations and public policy.

"Our take on the OCC fintech charter the whole time had been: [it's] interesting, but it's not a thing yet, so committing to something that doesn't yet exist is difficult," Massey said at the Electronic Transactions Association's fintech policy forum Sept. 6. He also cited ongoing concerns about how states will respond. The OCC has not received any applications for its fintech charter, an agency official said on Sept. 5.

Elsewhere at the policy forum, a Federal Reserve official said the regulator will evaluate any recipients of the OCC's fintech charter on a case-by-case basis. When a company is granted approval, the Fed will have to determine if that charter recipient would become a member of the Federal Reserve System and if it would gain access to services such as the Fed discount window, said Jeff Ernst, counsel for the Fed board's division of consumer and community affairs.

Ernst also said the Fed board plans to announce its latest step in the ongoing process to speed up payments in the U.S. in the fourth quarter.

In cryptocurrency news, Goldman Sachs Group Inc. shelved plans for a cryptocurrency trading desk. Instead, the i-bank plans to focus on a custody solution for cryptocurrency funds.

"This lowers the glare around the crypto ecosystem and gives time for [the] development of actual solutions, something the ecosystem is in dire need of to make it to the next level," Credit Suisse analyst Paul Condra wrote in a Sept. 7 note.

Coinbase Inc. may be exploring a partnership with BlackRock Inc. to create a bitcoin-based exchange-traded fund, Business Insider reported. Coinbase held conversations in recent weeks with BlackRock's blockchain working group, people familiar with the matter told the news outlet. A Coinbase ETF would join others aiming to be the first approved, but the SEC has so far struck down all cryptocurrency ETF proposals.

Also this week, Western Union Co. announced it is accelerating its global digital expansion. In the next few years, the company plans to scale to more than 200 countries and territories, focusing mostly on its mobile channel capabilities. Western Union Digital is already live across North America, major parts of Europe, Australia and New Zealand and several countries in Asia, Latin America and the Middle East. The technology services are next set to launch in Malaysia, Singapore, Mexico and the United Arab Emirates.

From Aug. 31 to Sept. 7, the SNL U.S. Financial Technology Index fell 1.32%.

A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.