Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Digital, NEO, Open Banking, Open Finance
Bill C-365: Paving the Way for Open Banking in Canada?
Open Banking in Canada | Nov 10, 2023
Image: Unsplash/Jason Dent
Conservative MP Ryan Williams has tabled Bill C-365, titled "The Consumer-Led Banking Act." a pivotal step in Canada's journey towards Open Banking, a system that could lower banking fees and mortgage rates for Canadians
The Conservative Party presented a private member's bill in the House of Commons on Thursday, November 9, 2023 urging the federal government to expedite the implementation of an open banking system, which has been experiencing delays.
Canadians currently face some of the highest banking fees globally, with average monthly fees around $15, transactional fees of $1.40, and $25 for overdrafts. This situation is largely attributed to the lack of competition in the banking sector, with six major banks controlling a significant portion of the market.
Open Banking, as seen in the UK and other countries, allows bank customers to more financial products and services choice in the market leading to lower banking fees. This system fosters a more competitive environment where banks and financial tech companies vie for customers, leading to better services and lower costs. In the UK, the implementation of consumer-led banking has reportedly saved families an average of $400 per year, with a notable decrease in mortgage rates.
Bill C-365
The proposed legislation, Bill C-365, requires support from multiple parties and seeks to compel the Canadian government to present a second report on Open Banking, which has been pending since May 2023. The bill mandates that Ms. Freeland unveil a plan to implement open banking within 30 days and introduce consumer-led banking legislation within six months. This move is seen as a direct challenge to the current Liberal government's inaction over the past four years.
See:
CFPB Unveils Open Banking and Consumer Data Rights Proposal
Vass Bednar: Canada’s Glaring Banking Protections Gap and Implications for Consumers and Fintechs
The Conservative party, through this bill, is pushing for Canadians to regain control over their financial data, currently dominated by banks. They argue that this legislation will break the oligopoly in the banking sector, offering Canadians financial freedom and savings throughout the year.
Pierre Poilievre, Conservative Leader:
“One of the reasons there’s not a lot of competition is that it’s very hard to move between banks or to other financial institutions,” he said. “The big banks control the data of their customers and that gives them a massive advantage over challengers trying to break into the market.”
Conclusion
Bill C-365 is a beacon of light for many Canadians burdened by high banking fees and open banking advocates. It promises not just financial relief but also a shift towards a more competitive and consumer-friendly banking sector. As Canada potentially joins other G7 countries in adopting Open Banking, this could mark a new era of financial empowerment for its citizens.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Will Elon’s X Become A Fintech Super App in 2024?
Fintech Innovation | Oct 27, 2023
Image: Unsplash/Rubaitul Azad
Elon Musk envisions X as a central hub for all financial transactions, aiming to launch comprehensive financial services by the end of 2024.
According to The Verge who listened to an audio recording, on Thursday, Elon Musk told X staff that by end of 2024, X should 'handle anything in life that deals with money'. He anticipates the platform's capabilities will significantly exceed expectations, encompassing every aspect of an individual's financial life, from money transfers to securities, and not just payments.
See: Rise of the super app
The company is currently working on acquiring the necessary money transmission licenses across the US to offer these financial services. Musk also plans to reintroduce and enhance features from the original X.com, his dot-com-era online bank that eventually became part of PayPal.
He aims to make X an "everything app," similar to super apps like WeChat in China, offering a wide range of services beyond just financial transactions. However, Musk acknowledges the challenges ahead, particularly in convincing people to trust X with their entire financial life.
Comparison with Other Super Apps
The future vision of X as a fintech super app involves creating a comprehensive and integrated platform that serves all aspects of a user’s financial life, while also offering various non-financial services. Some quick comparisons can be made:
- WeChat in China is a leading example of a super app, offering messaging, social media, payments, and various other services. X could differentiate itself by focusing more on comprehensive financial services and aiming for a global user base, whereas WeChat is primarily used in China.
- Paytm in India started as a mobile recharge app and expanded to offer a wide range of services including payments, banking, shopping, and travel booking. X could offer a broader range of financial services and integrate more non-financial services to create a more comprehensive ecosystem.
See: SEC Intensifies Probe of Wall Street’s Use of Messaging Apps
- Grab in Southeast Asia, Originally a ride-hailing app, has expanded into financial services, food delivery, and more. X could learn from Grab’s success in integrating various services and focus on creating a seamless user experience.
- Alipay in China is a major player in the mobile payment space, also offering financial products and services. X could differentiate itself by providing a more diverse range of services and focusing on innovation in financial products.
Challenges Ahead
While Elon Musk's innovative track record of transforming business models and disrupting industry sectors is unprecedented (with PayPal, Tesla, SpaceX, SolarCity, and many others), and consumers might just love the convenience, personalization, lower costs, and efficiencies of an Elon-esque fintech app that connects with banks, and other fintechs and financial institutions, there are several challenges that must be overcome that may make a 2024 deep financial feature set less likely, although AI predicts cautiously between 50-60% chance for Elon to achieve this milestone currently.
- The fintech space is highly competitive, with established players and numerous startups vying for market share.
- Regulatory timelines and hurdles. The financial industry is highly regulated, and obtaining the necessary licenses and approvals could be a significant challenge.
See: Interview with Inter CEO: Insights into the Super App’s Success
- Technical challenges given the X platform to create a secure, reliable, and user-friendly platform without any missteps that might hinder adoption.
- Winning consumer, business, and partner trust with a once social media platform turned online bank may prove challenging, if not very costly, too.
- Global user base and expansion adds complexities with varying user needs and diverse expectations, along with compliance and local regulations.
Given these factors, it's difficult to assign a specific percentage to the likelihood of X's success. However, if Musk and his team can effectively navigate the regulatory landscape, build consumer trust, and deliver a truly innovative and user-friendly platform, X has the potential to be a significant player in the fintech space. However, experience has taught us that given the uncertainties success is far from guaranteed, or at least a word to the remaining staff at X about to undergo the surgical procedures of transforming X into a global Super App - get ready to sleep on the floor again.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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CFPB Unveils Open Banking and Consumer Data Rights Proposal
Open Banking | Oct 20, 2023
Image: Unsplash/Claudio Schwarz
The Consumer Financial Protection Bureau (CFPB) has taken a monumental step towards Open Banking that will reshape the banking landscape. Their latest proposal is set to empower consumers, enhance competition, and streamline data sharing practices in the financial sector.
Overview of Proposal
The Consumer Financial Protection Bureau (CFPB) has put forth a transformative proposal that promises to redefine the banking sector. This initiative is set to champion open banking, ensuring consumers have unparalleled control over their financial data and are shielded from potential data misuse.
See: The Use and Regulation of Artificial Intelligence: When AI Meets Consumer Duty
- The CFPB's proposal, termed the Personal Financial Data Rights rule, is a testament to their commitment to consumer empowerment. This rule would prohibit financial institutions from retaining exclusive control over a person’s data, ensuring that companies share this data as directed by the consumer.
- The proposal aims to eliminate barriers that prevent consumers from switching banks, especially those that offer subpar services. By ensuring consistent access to financial data, consumers can easily transition to institutions that offer superior products and services. This will boost competition.
- The current landscape is riddled with inconsistencies in terms of data access across financial institutions. The CFPB's proposal seeks to standardize this, ensuring that consumers can seamlessly share their data with third-party entities, fostering competition and innovation.
- The proposed rule introduces stringent measures to prevent unauthorized surveillance and data misuse. Companies will be obligated to use the data solely for the consumer's intended purpose, ensuring that consumer interests are always prioritized. Data protection.
See: Join Open Banking Advocates to Demand Canada Unlock Financial Stagnation
- The proposal emphasizes the consumer's right to control their data. They can grant or revoke access at any time, and in the event of revocation, companies must immediately cease data access and default to data deletion.
- The CFPB is advocating for the elimination of "screen scraping," a practice that often compromises user credentials. The proposal promotes safer and more reliable data collection methods.
- Instead of dictating technical standards, the rule sets out requirements to ensure that industry standards are equitable, open, and inclusive.
Phased Rollout
The proposed rule is expected to be implemented in phases, with larger providers being subject to the requirements sooner than smaller entities. Community banks and credit unions without a digital interface will be exempt from the rule's requirements. This phased approach ensures that institutions of all sizes have adequate time to adapt to the new standards.
See:
NatWest Group’s Vision for the Future of Open Banking and 3 Potential Ways Forward
Canada’s Open Banking Journey: Taking inspiration from Australia’s Consumer Data Right with Kate O’Rourke, Treasury’s First Assistant Secretary for the CDR
Rohit Chopra, CFPB Director:
With the right consumer protections in place, a shift toward open and decentralized banking can supercharge competition, improve financial products and services, and discourage junk fees. Today, we are proposing a rule to give consumers the power to walk away from bad service and choose the financial institutions that offer the best products and prices.
Conclusion
The CFPB's proposal is a monumental step towards a more open and consumer-centric banking system. With robust consumer protections in place, this shift promises to enhance competition, improve financial products, and eliminate hidden fees.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Revolut & Softbank Strike Deal to Remove UK License Barrier
News | Oct 6, 2023
Image: Unsplash/Sophie Dupau
Revolut and SoftBank Seal Strategic Share Deal, Simplifying Ownership and Advancing UK Banking License Ambitions
Revolut has been in the spotlight, following its agreement to simplify its ownership structure alongside investor SoftBank, thereby eliminating a significant barrier to securing a banking license in the UK. Retuers reported that this move comes after months of negotiations between the two companies, with SoftBank demanding substantial compensation for relinquishing its priority class of shares.
Preference Shares Issue
The Bank of England had mandated Revolut to consolidate its six classes of shares into a single class as a prerequisite for a full license, which the company initially applied for over two and a half years ago. SoftBank, having led an $800 million funding round in 2021 that valued Revolut at $33 billion, sought compensation for forfeiting the protections attached to its share tranche.
This standoff was a primary reason behind the delay in Revolut obtaining a banking license. The principle agreement, finalized last week, does not encompass any new issuance of "top-up" shares for SoftBank and will not exert a financial impact on the company.
See: Revolut Launches Crypto Staking to 25 Million Customers
Other investors, including Tiger Global Management, venture capital firm TCV, Balderton Capital, and Ribbit Capital, have either agreed to transfer their shares into a single class or are in the concluding stages of discussions to do so1.
Revolut’s Prospective Growth
The Revolut-SoftBank deal exemplifies the intricate dance between fintech companies, investors, and regulatory bodies. As Revolut steps closer to obtaining its UK banking license and shakes off any other issues previously reported around internal cutlure.
This scenario underscores the importance of strategic partnerships, astute negotiations, and regulatory adherence in steering the course of fintech entities amidst the complex financial ecosystem.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Join Open Banking Advocates to Demand Canada Unlock Financial Stagnation
Open Banking in Canada | Oct 3, 2023
Coalition of advocates for open banking in Canada Launch 'Choose More' Campaign to Ignite
In a bold stride towards financial liberation and innovation, the "Choose More" campaign has been launched, spearheaded by a coalition of pioneering Canadian FinTech companies. This initiative emerges amidst the palpable delays and challenges that have entwined the open banking initiative in Canada, casting a spotlight on the urgent need for a robust, user-centric financial system.
Open banking, a system that provides a user-friendly and secure way for consumers to share their financial data with third-party developers, has been embraced by numerous countries to foster innovation and competition among financial service providers. However, Canada lags behind in implementing a formal open banking system, despite its potential to revolutionize the financial landscape.
Open Banking in Canada is At Risk
A recent article highlights the ongoing delays and challenges faced by the open banking initiative in Canada. A coalition of prominent Canadian FinTech companies, including Wealthsimple, EQ Bank, and Wise, launched the "Choose More" campaign to expedite the federal government's progress on open banking and payment modernization. This campaign underscores the potential benefits of open banking, such as reducing banking fees, enabling Canadians to utilize their rental history to build credit, and providing more choices and competitive pricing for consumers and small businesses.
See: NCFA Open Banking Current State in Canada with Senator Colin Deacon and Mahi Sall
Despite the apparent standstill, Abraham Tachjian, Canada’s open banking lead, has extended his tenure until the end of 2023, signaling a commitment to advancing this initiative but next steps for implementing a formal open banking system have not been announced. Canada remains the only G7 country without a formal open banking system or real-time payments.
Here's a break-down:
- 2018: Canada initiates exploration into the concept of open banking, marking the inception of discussions and considerations regarding the implementation of a new financial system.
- July 2021: A briefing note detailing the subsequent steps to advance open banking in Canada is delivered to the Minister of Finance, offering insights and recommendations for the journey ahead.
- August 2021: The federal government’s advisory committee releases a report, providing a blueprint for open banking in Canada, despite experiencing several delays.
- Early 2023: The federal government reneges on its election commitment to roll out an initial version of open banking, signaling a deviation from the proposed timeline.
- Mar 2023: The federal budget of 2023 omits updates or mentions of open banking, sparking concerns and dissatisfaction among FinTech executives and stakeholders.
- Summer 2023: Abraham Tachjian, the lead for open banking, has his timeline for delivering final recommendations to the finance ministry postponed until summer 2023, indicating further delays in the process.
- Oct 3, 2023: Abraham Tachjian announces the extension of his term as the leader of Canada’s open banking initiative until the end of 2023, ensuring continuity in leadership amidst the ongoing developments.
- Oct 3, 2023: A coalition of FinTech companies launches the "Choose More" campaign, advocating for the expedited implementation of open banking and payment modernization to address the ongoing delays and to promote a more efficient financial system in Canada.
Unproductive Canada Cannot Afford More Delays
The delay in implementing open banking and payment modernization has several implications for Canadians and the financial industry. Small and medium businesses, which are already grappling with stagnating sales and delayed payments from customers, could benefit significantly from reforms like open banking. Such reforms have been shown to lower fees, expedite money movement, and enhance access to capital in other global markets.
Moreover, the lack of a formal open banking system and real-time payments infrastructure puts Canada at a competitive disadvantage on the global stage, potentially stifling innovation and limiting options for consumers and businesses alike.
Choose More For Your Future! A Call to Action
The "Choose More For Your Future" campaign, accessible at choosemoreforyourfuture.com, advocates for an upgrade in Canada’s financial system, emphasizing that Canadians deserve banking that allows them to retain more of their money. The campaign highlights several issues with the current financial system, such as costly fees, slow payments, lack of choice, and a failure to innovate, pointing out that while Canadians grapple with high inflation and soaring costs, banks continue to reap substantial profits from fees.
Key Points from the Campaign:
- Sky-High Fees: Canadians pay substantial amounts in fees throughout their lifetimes, and Canadian businesses lose between $3-6.5 billion annually due to fees.
- Home Ownership: 63% of Canadians have relinquished their dream of home ownership due to financial constraints.
- Broken Promises: The campaign underscores that Ottawa is lagging in fulfilling its promise to reduce banking fees by providing Canadians with more options. While global counterparts are innovating and modernizing banking, Canadians continue to await a financial system that ensures they control their data.
- The Solution: The campaign advocates for Open Banking, which allows individuals to control their data, and payments modernization, which offers quicker and more cost-effective options for transferring money. However, Canada is trailing behind the global community in these aspects.
- Benefits of Open Banking: The campaign outlines several benefits of open banking, such as utilizing rental history to enhance credit scores, reducing fees for small businesses, economic growth, managing multiple accounts in one place, and providing more choices and lower fees for consumers.
Catalyze Change - Demand More From Your MPs and Government
The campaign calls for collective action, urging Canadians to join and demand more from their MPs and government, emphasizing that while one voice may not make a significant impact, thousands can. You can join the movement and make your voice heard by visiting Choose More For Your Future. Demand a more equitable, innovative, and consumer-friendly financial system that aligns with the digital age.
The journey towards open banking in Canada has been fraught with delays and challenges. However, the collective action of FinTech companies and the public can catalyze change and pave the way for a financial system that is in tune with the needs and demands of modern consumers and businesses. It is imperative for Canadians to advocate for a future where they have more control, options, and benefits from their financial data.
Choose More --> Now
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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BCG: APMs Set to Outpace Market Growth by 2X
Payments | Sep 18, 2023
Image: BCG Global Payments 2023 Report
The global payments landscape is on the brink of a major transformation with non-cash alternative payment methods (APMs) to grow twice as fast as the market.
In an era marked by rapid technological advancements, the global payments landscape is undergoing a monumental shift. As we stand at this crucial crossroads, the recent BCG report on Global Payments 2023 'Investor Scrutiny Provokes Moment of Truth' sheds light on the transformative trends shaping the industry. Dive in as we delve deeper into the key takeaways from the BCG report and explore the future of payments.
1. Growth of Alternate Payment Methods (APMs) is pressuring infrastructure providers to diversify
See: Autonomous IoT Transactions and Micropayments
With the global shift towards digitalization, APMs are gaining significant traction. From person-to-merchant transactions to cross-border payments, APMs are expanding their reach. Initiatives like the Immediate Cross-Border Payments (IXB) pilot and the Asian Payments Network (APN) are testament to this growth. As APMs continue to evolve, infrastructure providers must adapt to cater to diverse use cases, from consumer transactions to government payments.
2. Central banks are all over Central Bank Digital Currencies (CBDCs)
Over 90% of central banks are currently exploring the potential of CBDCs. Predictions from the Bank for International Settlements suggest that by 2030, we could witness up to 15 retail and 9 wholesale CBDCs in circulation. These digital currencies promise to reshape the payments ecosystem, offering benefits like enhanced monetary autonomy, financial inclusion, and broader industry applications, including programmable payments and integration into decentralized finance.
3. Open banking is unlocking new possibilities
Open banking is set to revolutionize the way financial data is shared and accessed. With its potential to streamline processes, from customer onboarding to digital identity verification, open banking is poised to offer a plethora of opportunities for both banks and fintechs. Infrastructure providers can play a pivotal role by offering solutions that simplify regulatory compliance and leverage open banking innovations for commercial applications.
See: NatWest Group’s Vision for the Future of Open Banking and 3 Potential Ways Forward
4. Regulators are setting new standards that balance innovation and security
As the payments industry evolves, regulatory bodies worldwide are stepping up their efforts to ensure a secure and level playing field. From the European Commission's draft proposals for Payment Service Regulation to local data storage rules, regulators are setting new standards. Infrastructure providers must stay abreast of these changes, ensuring compliance while also advocating for policies that foster innovation.
Strategic Recommendations for the Future
Choose a Strategic Direction
- Amidst the myriad of opportunities and challenges in the evolving payments infrastructure, it's crucial for players to identify a primary focus.
- While card schemes have built robust networks over the years, diversification is now essential. Exploring areas like B2B payments, account-based payments, and open banking will be vital for sustained growth.
See: UK Government Publishes Recommendations for the Next Phase of Open Banking
- Banks and financial institutions need to ensure their ongoing infrastructure projects are aligned with value creation.
- Tech players should be poised to address emerging trends in decentralized finance and related innovations.
Facilitate Modernization
- Infrastructure providers, with their deep insights into the payments ecosystem, are uniquely positioned to drive modernization.
- They can offer specialized solutions, whether "as a service", embedded finance, or other models.
- Leaders can customize data for open banking, CBDCs, and other explorations to cater to specific target groups.
Forge Partnerships with Policymakers
- Collaboration between industry stakeholders and regulators is paramount to shape the future of payment infrastructure.
- Entities like banks and card schemes can play a pivotal role in enlightening policymakers about the potential risks and rewards of CBDCs, tokenized deposits, and other advancements.
- Regulators, in turn, should be receptive to industry insights, ensuring that their policies bolster rather than hinder innovation and promote the adoption of new payment infrastructures.
Diversify Revenue Streams
- Given the potential commoditization of core infrastructure strategies, providers should pivot towards orchestration-layer propositions and value-added services (VAS) at scale.
- Card schemes have already demonstrated the advantages of transitioning to VAS.
See: The Transformative Impact of Instant Payments on Financial Crime Mitigation
- A diversified solution portfolio can serve as a safeguard against downturns in any specific product segment.
- To deliver these enhanced offerings, a shift from a business-centric approach to a product-centric one is essential, fostering continuous innovation and ensuring consistent value delivery to clients.
The New Payments Landscape is Here
The payment infrastructure revolution is here, and it promises to reshape the future of finance. By staying informed, being strategic, and embracing innovation, industry stakeholders can navigate this transformative era and emerge as leaders in the new financial landscape.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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A Scaling Fintech’s Decision “To Bank or Not to Bank?”
Digital Banking | Sep 18, 2023
Image: Unsplash/Susan Q Yin
As the industry matures, the decision to become a bank or remain an independent fintech entity is becoming increasingly significant. The recent decision by Figure, led by its visionary CEO Mike Cagney, to withdraw its bank application has ignited a fresh debate on this topic.
Mike Cagney's leadership at Figure (and Co-founder of SoFi) has always been characterized by forward-thinking and innovation. His decision for Figure not to become a bank wasn't a reflection of the company's inability to do so, but rather a strategic choice rooted in a broader vision for the fintech industry. Cagney's perspective offers valuable insights for other fintech leaders grappling with similar decisions.
When my startup, Figure, recently withdrew our OCC bank application, many in the media took it as a sign that fintechs like us need to become a bank to survive—but that the process is simply too hard. They got it wrong.
- While becoming a bank can simplify licensing processes, it also brings with it a slew of regulatory hurdles and licensing challenges. For fintechs like Figure, which already hold numerous state licenses, the allure of a single banking license might be outweighed by the regulatory constraints that come with it.
- Traditional banking models come with stringent capital requirements, especially for specific loan types. These requirements can make certain financial products uneconomical for banks but lucrative for fintechs.
- Fintechs, unlike banks, trade on earnings, allowing for more dynamic growth opportunities. Banks, on the other hand, often trade on a multiple of book value, potentially limiting their market capitalization growth.
- One of Figure's standout achievements under Cagney's leadership has been its pioneering work with public blockchains. Regulatory views on such innovations can be restrictive for banks who are less flexible, potentially stifling the very innovation that fintechs thrive on.
See: The OCC is Facing Calls to Pull Guidance That Allows Banks to Do Some Crypto Business
Having said that, there are numerous pros of becoming a bank that we shouldn't overlook!
- Fintech companies often have to manage multiple state licenses for various financial services. Becoming a bank would simplify the licensing process, allowing them to operate under a single banking license across states.
- Having one regulator can lead to significant operational and compliance savings.
- Banks have the ability (and the requirement) to accept deposits insured by the FDIC. This can provide a more stable and predictable source of financing compared to wholesale capital markets.
- Banks can access funding backstops such as the FHLB and the Fed Window, which can offer lower costs.
Where Does the Rubber Hit the Road for Growing Fintechs?
For many fintechs, the decision to become a bank is not just about regulatory and capital considerations. It's about identity. Fintechs, at their core, are disruptors. They challenge traditional financial models, introduce innovations, and often operate at the cutting edge of technology.
See: When Big techs and fintechs own banks
The real question is: Can fintechs maintain their innovative edge within the confines of a traditional banking model? Or do they risk losing their unique value proposition by becoming too enmeshed in the very system they set out to disrupt?
As more fintechs reach the crossroads that Figure encountered, they would do well to consider not just the immediate benefits of becoming a bank, but the long-term implications for their brand, their innovation potential, and their role in reshaping the financial landscape.
While the allure of becoming a bank is undeniable, as Mike Cagney's leadership at Figure illustrates, sometimes the boldest move is to chart a course that aligns with the company's core values and vision for the future of finance.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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