Fintech Firms Want to Shake up Banking, and That Worries the Fed

The U.S. Federal Reserve is wary of giving "fintech" firms such as OnDeck Capital Inc or Kabbage Inc. access to the country's financial infrastructure, putting the central bank at odds with other regulators looking to bring them into the fold.The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are exploring granting federal bank-like licenses to tech-driven firms that offer financial services, such as money transfers and lending.The plan is part of a broader push by President Donald Trump's administration to boost small businesses and promote job growth.Federal licenses would allow fintech firms, which currently operate under a patchwork of state rules, to reduce their regulatory costs and expand into new regions and products.However, fintech firms say they are reluctant to invest heavily in nationwide expansion without access to the payment systems, settlement services, and other Fed tools and the central bank has yet to decide whether to let those lightly-regulated players in.Many Fed officials fear these firms lack robust risk-management controls and consumer protections that banks have in place.“They probably do want access to the payments system, but they don't want the regulation that would come with that access,” St. Louis Fed President James Bullard told Reuters in November. "I am concerned that fintech will be the source of the next crisis,” he added.Companies such as PayPal and LendingClub Corp have attracted millions of customers by offering greater convenience or better prices than traditional banks. The OCC and the FDIC say such firms can broaden access to financial services because their low-cost models allow them to reach poorly served areas and offer small loans that are uneconomical for bigger banks.