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Are states gaining upper hand in fintech charter battle?

December 30, 2019, American Banker

Mike Nonaka spoke with American Banker about fintech companies’ struggle to gain banking charters in 2019 and the prospect for better results in 2020. Mr. Nonaka says, “States are looking at how difficult the federal landscape can be, and based on their current laws, they're looking for ways to attract companies — either through their current regulations or even by introducing new legislation. There's a lot of space to offer interesting charters and licenses, and you'll see more of that in 2020."


The OCC’s special-purpose fintech charter could allow firms to avoid an uneven patchwork of state regulations, but the business sentiment toward the charter has shifted after years of litigation. Mr. Nonaka adds that interest in the new charter was not that strong in the first place beyond payments-focused companies. “The one thing I've worried about with the charter is that there was a small population of groups that are interested and eligible for it in the first place,” he said. “Without FDIC insurance, it's limited, and the longer it's on ice, the number of companies interested is going to keep shrinking." 


He says the ILC (industrial loan company) is "an attractive way for fintechs to enter the banking system, but it’s not the exclusive way. There are other fintech companies that haven't opted for the ILC charter. It's not the consensus favorite."


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