FinTech And Growth And Trouble
I have recently been coming across several articles on the collision between fintech, the banks that give the fintech API access to the payments system, and federal regulators over BSA/AML violations.
Look at the evidence: several banks like Piermont Bank, Sutton Bank, Blue Ridge Bank, Cross River Bank, and First Fed Bank have all been criticized for engaging in practices that were deemed unsafe or unsound.
In several articles, one person voices the (seemingly) common belief that regulations are more of a hindrance than a help.
Consider the way some view their new banking charter: it's like a startup, but it's crucial to remember that what got them in the door wasn't sheer genius—it was access to FDIC insurance. And let’s clear something up: internal audit isn't just a line item you can cut to save money. If you think that, you might be setting yourself up for some tough conversations.
Take Piermont Bank's CEO, Wendy Cai-Lee, for instance. Founded in 2019 with just one branch in Bryant Park, Piermont Bank may not wow with its Google Review score of 2.7 or a slightly better Glassdoor rating of 2.9, but American Banker states in 2021 the bank saw 122% asset growth, 137% deposit growth and a 91.5% growth in client relationships. Their website states they offer "decades of banking regulatory and compliance expertise to FinTech companies to help bridge any compliance gaps and enable faster seamless growth." Ok growth, great , but was this the plan from the beginning then how did they plan to vet everyone who showed up? Was it just a matter of sending the API instructions?
When interviewed Cai-Lee mused that any bank involved with Banking as a Service, or BaaS—which integrates services like ACH, Wire, and Card Issuance for third-party use—is likely to face regulatory scrutiny. I guess it was just her number had come up.
Meanwhile, Phil Goldfeder, a non-banker and co-founder of the American Fintech Council, expressed frustration in a BankingDive article by Caitlin Mullen. He argued that regulators are stifling innovation and should be supporting the evolution of credit services instead.
From my experience as a former regulator, I can say it’s unlikely that the OCC and FDIC see enabling or supplying custom guidance for “new offerings” as part of their primary role.