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More fintech companies are growing interested in being nationally regulated as fintech becomes more ingrained in traditional financial services.
One regulatory avenue for fintech firms to gain a national regulator, the Office of the Comptroller of the Currency's special-purpose bank charter for fintech companies, could provide consistency to a sector where regulation currently exists on a state-by-state basis.
But the charter could lead to a "bifurcation" of the fintech industry if the charter proves to give some companies but not others an advantage, said Jackson Mueller, an associate director at the Center for Financial Markets, a think tank at the Milken Institute.
"Our concern is that this ends up empowering the bigger fintechs out there, while the smaller ones are settling for bank partnerships or dealing state-by-state because they don't have the time and funds to withstand the charter," Mueller said in an interview. Bank partnerships have become a common way for fintech companies to enter the larger financial ecosystem, particularly in 2017.
Mueller noted that the state-based system has created "a mess of regulators" for fintech companies. But the industry itself has become more complicated as well.
"It used to be a lot easier to define 'fintech' and understand what [the OCC was] talking about. Now, it's 'insert your name here-tech,'" he said, with incumbents previously not considered to be in fintech defining themselves as such.
The OCC needs to determine what does and does not qualify for the charter, which is not currently clear, he said. Mueller hopes a second OCC proposal or a final draft will be issued in 2018.
The charter, if it passes, is still just one of several methods fintech companies can use to work on a national level. Some companies, like Square Inc. and Varo Money Inc., have applied for industrial loan company charters, which would give them national oversight.
Although critics argue that the ILC would give fintech companies fewer regulations than banks, which are regulated under the Bank Holding Company Act, the Milken Institute argues that the oversight is virtually the same. There has been only one ILC approved since November 2007, which Mueller said is bad both for competition and also for the "vibrancy" of the financial services ecosystem.
Some observers have speculated that approving Square's ILC would open the gateway for Amazon.com Inc., Google Inc. and Apple Inc. to do the same. But Mueller believes the tech giants may not expand into banking, where they could face antitrust threats and scrutiny from Capitol Hill.
In other fintech news this year, cryptocurrencies received more public attention than ever before, and two major exchanges began trading futures contracts based on bitcoin. The price of bitcoin rose about 1,343% from Jan. 1 to Dec. 28, going from about $997 to $14,406 per coin, while the price of ethereum rose 9,126% over that time, soaring from $8.15 to about $752.
Cybersecurity was thrust into the spotlight this year following Equifax's announcement of a data breach that affected up to 145.5 million U.S. customers. Lawmakers followed the scandal by calling for stricter oversight of consumer credit agencies.
In payments this year, the sector has been ripe with large deals, including First Data Corp.'s acquisition of CardConnect Corp., Vantiv Inc.'s planned acquisition of Worldpay Group plc, PayPal Holdings Inc.'s acquisition of TIO Networks and Mastercard Inc.'s acquisition of VocaLink Holdings Ltd, among others.
From Jan. 1 to Dec. 29, the SNL U.S. Financial Technology Index rose 35.25%.
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.