As we move through what might be the final stages of the pandemic, as the vaccines may put an end to this public health nightmare, the virus has altered several business verticals – permanently.
Banking is no exception, and the lines are blurring between a host of players in the financial services ecosystem. Digital-first, digital-only. Linked accounts, installment loans, instant payments. Traditional financial institutions (FIs), once so reliant on brick-and-mortar interactions, now count their mobile users in the tens of millions.
Banking, then, as it continues along its great digital shift, has its allure – but first, of course, comes the banking license.
The Wall Street Journal reports that a wide range of companies is seeking to become banks, judging from the volume of applications for banking licenses.
As tabulated by the Office of the Comptroller of the Currency (OCC), 10 firms have applied for national bank charters as measured through the fiscal year that ended on Sept. 30 – and that’s the largest tally in a decade.
And past that fiscal year-end, there have been more applicants, among them Oportun Financial Corp., which operates as a consumer lender. Separately, and as profiled in this space, Figure Technologies said it had applied for a national charter. Varo Money’s bank was granted its own national charter over the summer to offer free checking and savings accounts through a mobile app. And Square, of course, got the green light from the Federal Deposit Insurance Corporation to create a de novo bank in Utah, to offer small business loans and other financial products.
Striking While the Iron Is Hot
The overarching theme, we might submit: Strike while the iron is hot. The Journal noted that banks have had to set aside reserves in the billions of dollars to counter the impact of souring loans. We’re certainly on uncertain economic ground, amid stubbornly high unemployment and no shortage of revenue headwinds for enterprises.
Low interest rates, of course, squeeze margins. Margins, of course, are on every financial executive’s mind, as what a firm lends must be weighed against what it pays out on its own customers’ accounts, which are also a source of dry powder for lending. It’s a delicate balancing act, to be sure. But for tech-focused companies with relatively less burdensome cost structures than brick-and-mortar players grappling with legacy infrastructure, the risk-reward may still be attractive.
National charters, of course, let firms operate nationwide, with some uniformity of offerings. And in terms of satisfying regulatory requirements, the process is streamlined. In an interview with PYMNTS, Mike Cagney, Figure co-founder and CEO, told Karen Webster that with the OCC as the sole regulator, the company need not have separate licenses in each state in order to operate there. With a nod to the regulatory complexities inherent in operating as a firm without that charter in place, he said that “we’re going to have more than 200 state licenses next year for mortgage origination, non-secured consumer loans, servicing money and transmitter licenses.”
As the pandemic subsides, we may be in for an increased flurry of banking applications from companies catering to consumers who want to bank across platforms and mobile devices.