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3 Ways the New Fintech Charter Could Help Your Business

3 Ways the New Fintech Charter Could Help Your Business
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By    |   Wednesday, 29 August 2018 09:58 AM

The Office of the Comptroller of the Currency (OCC) recently announced a new national bank charter specifically geared toward fintech companies. The charter was announced immediately following the U.S. Treasury's recommendation supporting a charter in the spirit of innovation and to encourage national regulation. In theory, the bank charter would help streamline compliance and promote innovation. Some also view the charter as a tool to help fintech companies compete directly with banks.

This charter is predicted to have a large impact in the small-business lending space specifically. There's been a rise of online lenders over recent years, and they've been operating largely unchecked. Many of these lenders have taken advantage of lax regulations, and borrowers have paid the price. These online lenders appeal to borrowers who can't qualify for a loan with a traditional lender like a bank — but still need funding and are willing to pay high rates and fees for it. Many view this charter as the first step in the right direction of increased regulation in this space.

Changes in national policy can be confusing to decipher, so here are the three ways the OCC's decision will affect your business.

1. Increased Lender Competition — Why is increased lending competition better for customers? Well, it could lead to better products. Banks have operated in the debt financing space in the same manner for decades. They take weeks to process applications, only accept the most qualified borrowers and usually have strict repayment plans. Online lenders, on the other hand, bring everything to the table that banks do not. Some fund borrowers within days, offer lenient requirements and are often flexible with repayment issues.

Banks haven't yet had to compete with online lenders since they've appealed to different markets for the most part. However, if the charter makes things easier for online lenders and they're now able to charge competitive rates with banks, a lot of small-business owners will likely move to online lenders for their benefits. In response, banks will have to figure out how to make their loans more attractive if they're going to compete directly with online lenders. While we don't know what their exact move will be yet, we imagine it'll only make loans more attractive for borrowers.

2. More Transparent Loan Fees — Online lenders sometimes portray fees in a way that makes apples-to-apples comparisons difficult. The U.S. Treasury found that some online lenders will often use rates that aren't standardized and easy to understand. For example, one lender could use a factor rate while another could use an annualized interest rate. This lack of standardization makes comparisons very difficult and could make rates seem cheaper than they actually are. Under a federally regulated bank charter, lenders wouldn't be able to continue such practices.

3. Infusion of Technology and Small-Business Loans — One of the biggest unspoken benefits of fintech companies is the improved user experience. Sleek dashboards and intuitive apps have made small-business loans rather easy to maintain. Of course, not every lender will have a perfect user experience, but the overall experience is far different from that of banks, which usually tend to fall behind in technology. We also won't pretend that a borrower takes out a loan because the app is easy to use, but it's a big step for the otherwise archaic space of small-business lending.

When Will Things Change?

Unfortunately, lenders must apply for the charter, so we won't see changes until lenders apply. As of August 2018, the charter hasn't yet received any applications. Until then, we'll have to wait and see how online lenders react to the charter and any upcoming changes. New York's Department of Financial Services is still calling for increased small-business lending regulation within its own state. In the meantime, online lenders are still a great option for those who really need financing and can't qualify for loans from banks or credit unions. Small-business loans are still one of the greatest ways to quickly increase capital without having to give up any control or ownership of your business.

Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.

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Changes in national policy can be confusing to decipher, so here are the three ways the OCC's decision will affect your business.
fintech charter, help, business
Wednesday, 29 August 2018 09:58 AM
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