FinTech companies like Wise, Ripple, and Circle are taking significant measures to streamline their operations by applying for national trust bank charters with the Office of the Comptroller of the Currency (OCC). If approved, these charters will enable the firms to bypass the complex and fragmented system of obtaining state-by-state licenses or relying on correspondent banking for cross-border transactions. While they will be under the oversight of a single regulator, the OCC, they will not be allowed to hold insured deposits or engage in lending activities.
In the past, FinTech companies took alternative routes to expand their operational reach. Without the national charter, the common approach involved acquiring numerous state money transmitter licenses or considering acquisitions or transformations into banks, as seen with LendingClub. However, the pursuit of a national trust bank charter, while narrowing opportunities, offers more strategic regulatory alignment and growth potential in banking services without the regulatory burden associated with traditional banks. The move is set against a backdrop of evolving fintech regulations and an increasing drive towards streamlining financial services globally.
What Does the OCC Say?
The OCC has long maintained that the National Bank Act is flexible enough to allow national banks, including special-purpose banks like trust banks, to innovate within their banking activities.
This statement suggests a supportive regulatory environment for FinTechs seeking new avenues for operational efficiency through national charters.
Why Are Companies Seeking Direct Connections?
Accessing the Federal Reserve’s payment rails brings distinct advantages. Wise, for instance, could directly clear and settle U.S. dollar transactions, reducing reliance on intermediary banks and potentially decreasing transaction fees. These financial intermediaries often contribute to increased costs and risks, largely impacting customers. Ripple’s application for a master account with the Federal Reserve further underscores this strategic push for more efficient cross-border fund management.
Obtaining these connections reduces cross-border payment fees, which currently average around 6.5 percent. The public has until July 18 to comment on Wise’s application. Such direct connections could translate into more cost-effective services for end-users, enhancing efficiency across their platforms.
The implications for Circle and others in custody services can also be significant. Circle aims to leverage its national trust charter to expand its custodial services within the given regulatory framework, pointing to increased flexibility in handling reserves and issuing stablecoins.
By integrating more intimately with the Federal Reserve’s systems, these companies could bypass conventional banking limitations. This aligns with a broader industry trend of FinTech firms seeking more strategic alliances and channels to streamline financial operations and controls.
Exploring these national bank charters allows FinTech firms greater latitude to market their services while remaining engaged with cutting-edge financial technologies. These maneuvers are part of a pattern indicating the symbiotic evolution between regulatory frameworks and financial innovation. While fostering innovation, the national charter applications underscore the importance of suitable regulatory oversight to balance growth and consumer protection. Actions by Wise, Ripple, and Circle reflect a broader shift towards reshaping the FinTech landscape through strategic regulatory engagements.
