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Fintech: Friend or Foe of Banks?

November/December 2016
Illinois Banker

It seems as if everyone wants to get on the fintech bandwagon — even the banking regulators. The Office of the Comptroller of the Currency recently announced that in the fall of 2017 it will be opening an “Innovation Office” to allow financial institutions the opportunity to explore new technology-based banking products and services while still supporting applicable law and regulation, including consumer protection. Similarly, the Consumer Financial Protection Bureau has a “Project Catalyst” to promote the use of technology in financial services. The Comptroller has gone so far as to say it is exploring a special limited-purpose national bank charter for fintech companies.

Considering the flurry of activity in the fintech arena, is there a place for banks and, if so, what role can banks play? Given that marketplace lending is the most developed form of fintech today, it can be analyzed to see how banks do play important roles and employ different strategies dealing with this emerging market segment. Marketplace lending arose in part because many banks stopped making small consumer and business loans allowing entrepreneurs to fill the void. But banks have been a necessary part of this cottage industry. Many of the large marketplace lending platforms enter into program agreements with banks that actually make and fund the internet-originated loans through a marketing website operated and branded by the platform operator.

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