March 24, 2017

Licensing Fintech Consumer Lending Technology to Banks

EXCERPT: The financial industry has experienced a shake-up over recent years with the emergence of fintech firms. Consumers have benefitted from the convenience of doing their banking online and through mobile devices, and such technology is being extended to banks through the licensing of these technological platforms to enhance the customer experience.

The technological platforms that fintechs use are being licensed to banks to help enrich the customer experience.

With an increasing number of consumers looking for digital services to boost the convenience of doing their banking, it would be in the best interest of banks to tap into the technology that fintech startups have already been offering to their growing consumer base.

Many banks have already been adopting such technology in an effort to serve their customer base and improve user experience for their clients. Some have even gone so far as to partner up with fintechs to tap into the success that many of them have experienced and expand on their technological platforms.

Recent Changes

The financial industry realized a major transformation over the recent past as a result of the emergence of fintech start-ups that have assumed services that were traditionally only issued by banks, including issuing loans and allowing electronic payments. Investments into fintech firms have skyrocketed from $1.8 billion five years ago to a whopping $24 billion today.

Recently, regulators have begun planning the development of a new type of banking license that will provide upstart fintech firms with the opportunity to grow more quickly. These licenses, which will come from the Office of the Comptroller of the Currency that oversees many banks across the country, will be available to fintechs that accept deposits, loans, or electronic payments. Fintechs will be able to license their technology platforms to banks in an effort to help enrich the customer experience.

Some consumer advocates and regulators are worried about how the new fintech bank charter could potentially compromise the safety of customers in the banking industry.

As the Financial Industry Moves Forward...

Technology-based banking products and services are the future of the financial industry, and consumers are increasingly using their smartphones and tablets to manage their finances. Banks have been increasingly responding to this fact by expanding their mobile capabilities.

With more and more companies looking to license their online lending platforms, traditional financial institutions can tap into digital lending without having to come up with their own systems. Licensing offers the potential to reach the unbanked and underserved consumer populations and develop products that are much more efficient and convenient.

Partnerships Offer Promising Opportunities

This licensing of technological platforms to banks can certainly provide a great opportunity for consumers to realize a more positive banking experience, but some banking regulators are concerned that such licensing could allow fintech start-ups to dodge state laws that were designed to protect consumers. Many are uncertain as to whether or not the potential to boost consumer experience is reason enough to possibly increase the risk of compromising consumer protections and certain state laws.

Since the emergence of fintechs, regulators have been working hard to ensure that customers who are being served by such tech institutions are just as protected as those who continue to deal with traditional banks. Yet fintech entrepreneurs have expressed complaints that existing regulations are standing in the way of expanding innovations.

However, fintech companies can still work under existing regulations and partner up with banks to expand their new innovations and provide their services to customers, yet still have the option of applying for the new charter at some point down the road. A charter, on the other hand, would provide fintechs with the opportunity to provide many services on their own, such as issuing credit cards and moving money to another client.

Judging by how quickly the lending realm is changing as a result of emerging technological platforms, partnerships between banks and fintechs will be crucial as time passes.  

Partnering With a Loan Sale Advisor to Handle Deals

The idea of such sharing of technological platforms to enhance customer experience certainly seems promising. However, these deals involve plenty of complexities and friction in order to comply with current bank regulations. As such, the addition of a seasoned loan sale advisor like Garnet Capital would prove extremely helpful.

To find out more about how Garnet Capital can help streamline these licensing deals, sign up for our newsletter today.