“We are not financial institutions” historically has been a core fintech mantra heard around the industry. Unconstrained by many regulatory requirements applicable to banks and other financial institutions, fintechs pride themselves on creating deep customer connections, navigating market trends agilely, and creating disruption for traditional competitors.
Many fintechs have effectively achieved these results by delivering disruptive solutions that transform payments, lending, wealth management, and more. However, recent regulatory and industry developments suggest a potential blurring of the lines between fintechs and other financial institutions. The regulatory community is recognizing that fintechs are offering services similar to those from traditional institutions. As a result, some fintechs are abandoning the “not financial institutions” mantra to consider or pursue bank charters, both to compete more broadly and to avoid having to address disparate regulatory requirements at the individual state level where they conduct business. Simultaneously, banks are courting—and, in some cases, are already working with—fintechs to leverage their disruptive capabilities and address the demands of tech-savvy consumers.
As the future brings new risks related to increasing regulatory expectations, along with potential penalties and legal actions for non-compliance, fintechs can no longer maintain that they are unlike traditional financial institutions in their delivery of products.
For more information on the risk landscape that fintechs face today, as well as how they can thrive in a more regulated business environment, read our new paper Fintechs and regulatory compliance: Understanding risks and rewards.
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