The US OCC will soon be accepting applications from non-deposit taking fintech organisations to operate as banks on a nationwide basis, and early predictions suggest many firms will seize the opportunity.
The ruling could shake up the retail and business banking sectors but there could be significant changes for fintech buyers. Here’s just a few ways the market for financial technology could change, and what CTOs need to bear in mind.
1. Bank tech buyers pitched against sellers
With fintechs expected to move into a variety of banking subsectors – if not take on the incumbents directly – fintech buyers from established banks could find their organisations pitted against those who previously supplied their tech requirements. For instance, should a firm offering payment software to banks establish itself as a fintech bank with a state-of-the-art payment system as its unique selling point, the incumbent might find itself going head-to-head with a former partner.
2. Banks push back, fintech arena becomes more competitive
Should fintechs seek out a banking license, incumbent banks could start to look over their shoulder before opening up their back ends to potential rivals. CTOs and those involved in the IT buying process at banks may want to know more about partner’s – and potential partner’s – plans for the future while considering how a software agreement lays bare their strategic advantages. In theory, that could lead to banks considering in-house builds, especially with the Dodd Frank roll back freeing up budget to invest in innovation.
3. The end of the service?
It’s early days, but should a large proportion of the fintech community decide to completely move into banking and some predicted to change business strategy, it could lead some in the market to look to bring an end to current partnership agreements. The OCC ruling is an opportunity for the fintech market to capitalise on potentially far greater returns, and some may look to re-strategise entirely. That could mean CTOs being forced to reassess their options.
4. A new fintech market?
Banking – as well as the far larger financial services community – has of course benefited greatly from technological developments over the past few decades. If US-based fintech firms have a major change in strategy, the void will either be filled by banks building internally - which is an unpopular, resource-heavy choice - buyers looking overseas, or new firms entering the market. That last option can’t be written off: the fintech market has been driven by start-ups over the past few years – with agile, innovative developers setting up shop and driving change. Nothing suggests that will slow down.
5. Regtech demands to surge?
The US banking sector has been shaped by regulation since the financial crisis – and as fast as the industry's authorities have created new rules, technological products and platforms have been created to help the market deal with the deluge of compliance requirements.
With new firms entering the world of banking, regtech providers could benefit, creating a highly competitive market, with which CTOs at incumbents and new market entrants could also resoundingly benefit.