Two credit union industry groups are keeping a close eye on one startup's recent bank charter application to see whether fintechs that want to compete on their turf will land on the same regulatory playing field.
The firm, Varo Money, is a San Francisco-based mobile banking startup that offers a phone app intended to help people manage their finances. On July 25, the company announced it had applied to the Office of the Comptroller of the Currency (OCC) for a national bank charter and to the FDIC for federal deposit insurance to form Varo Bank, N.A.
“We founded Varo because we believe many people could benefit from an easier, more affordable way to manage their money and reach their financial goals with just a few taps on their mobile phone,” Varo Money co-founder and CEO Colin Walsh said. “To do this, we got customers involved in an iterative process from the beginning. We wanted to offer more than just checking, savings and lending products—we wanted to help our customers solve financial problems, fix the fundamentals, and guide them toward a better financial future. As a national bank, Varo will be able to help Americans nationwide.”
Varo Money is a founding member of the recently formed fintech trade group Consumer Financial Data Rights, and it is not the only fintech entity pursing a charter. Another San Francisco-based startup, SoFi, is also pursuing a charter.
Whether this is all a good thing is still to be determined, according to some industry experts.
Carrie Hunt, who is executive vice president of government affairs and general counsel at NAFCU, said a fair regulatory playing field is key and that fintech companies have to be held to the same data and cybersecurity standards that apply to credit unions.
“Credit unions have restricted fields of membership, so in terms of whenever we do any type of partnership, we want to make sure that we have the same opportunities that other companies do that are less regulated,” she explained.
Credit unions have a lot of opportunities to partner with fintech companies, but how easy that is may depend on what the regulatory landscape looks like going forward, Hunt noted. How regulators apply the rules may determine the size of the threat fintech companies pose in their charter pursuits.
“If you have companies who are essentially providing the same services that credit unions and banks do, but don't have to follow the same rules, then yes, that potentially will be extremely problematic, and that's why we supported the FDIC and OCC's proposal relative to a bank charter, because to date, that was the best option that we saw in trying to get these companies pulled into a regulatory regime,” she said.
Regulations could also create significant operational obstacles for the charter applicants themselves, according to Maryland/DC Credit Union Association President/CEO John Bratsakis.
“Fintech companies are challenging financial institutions to evolve and innovate to stay competitive. Credit unions are offering more technology-driven services to meet members' needs, but the process is often slowed by the regulations others don't have to follow,” Bratsakis said in a statement to CU Times. “The challenge for fintechs will be navigating the mountain of regulations that we as credit unions deal with on a daily basis. Fintech companies may find that legislative and regulatory bureaucracy trumps technology.”
There are other reasons the industry is watching Varo Money, of course.
“If someone is going to a fintech company or any other entity instead of a credit union, there has to be a reason why,” Hunt said. “So, if it's convenience, if it's price, if it's just what in fact they're offering, then credit unions have to look at that and make sure they're able to keep pace or partner with someone who is.”
The public comment period on Varo Money's began on July 24 and ends on August 22, according to the OCC.
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