Bank/Fintech Partnerships—Solving For a Nationwide Product and Service

As the development of financial technology solutions has disrupted traditional financial services over the past decade, questions around legal and regulatory obligations have also become more acute. While promising immense benefit to consumers, this technological renaissance faces the daunting challenge of navigating the complex and sometimes inflexible financial regulatory environment that has been around for over a century.

Today, fintechs are experimenting with novel ways to offer their products and services at scale. However, today’s regulatory landscape – dictated by disparate regimes across the federal and state landscape – is not well suited to fintechs seeking to extend credit on a nationwide basis. A common solution for fintechs is to partner with banks, who benefit from legal and regulatory privileges that allow them to more easily compete on a national scale.

State and federal regulators have taken varying approaches with respect to the supervision and regulation of these partnerships. Further, while there does not appear to be a consensus view, even a few states challenging the status quo could disrupt a national lending model and have a significant impact on the power dynamics in a dual banking system. If the federal charter becomes more cost-efficient and more certain from a regulatory perspective, it begs the question as to whether the state charter becomes less effective and competitive.