Acting Comptroller of the Currency Keith Noreika delivered a speech today discussing the US banking industry. In the speech, Noreika makes an important point: US banks need more competition, not less. He also intimates that mixing commerce and banking can deliver benefits to consumers. Take this one step further, and Noreika is indicating big tech, like Amazon, Apple, Google, Facebook and more, should be allowed to become banks. Of course traditional finance will fight this tooth and nail.
“Laws that prevent companies with resources and means from becoming competitor banks only serve to protect existing big banks from would-be rivals. It has the perverse effect of maintaining the concentration in the big banks that exists today.”
We vehemently concur. Competition drives benefits to both consumers and businesses by providing better service and lower costs.. Any policymaker that stands in the way of blocking competition in the banking industry should be tarred and feathered or worse.
Noreika continues to explain;
“Meaningful competition could have a number of other positive effects besides tempering the risk concentrated in having just a few mega banks. It could make more U.S. banks globally competitive and promote economic opportunity and growth domestically. For banking customers, particularly those underserved by traditional banks, more competition could result in better banking services, greater availability, and better pricing. If a commercial company can deliver banking services better than existing banks, we hurt consumers by making it hard for them to do so. Don’t take my word for it. A number of empirical studies tell the story.”
The banking industry is a powerful lobby with many friends on Capitol Hill. Emerging Fintech challenger banks are not so powerful and lack the resources of huge mega banks. Big tech, while having loads of cash, is tip toeing into financial services as they understand how quickly political sentiment can change. Both elected and appointed policymakers can be easily swayed by political operatives and powerful constituents.
So what is the fix? For one, a streamlined Fintech Charter that allows commercial operations including emerging Fintech firms to receive approval to provide banking services should be pursued. Challenges by the protectors of big finance, like the lawsuit by the New York State Department of Financial Services, should be laughed out of the room. Institutions that seek to block innovations in finance will never let facts get in the way of their mission.
Noreika asserts that multiple studies indicate that mixing banking an commerce can generate efficiencies along with more value to customers with little to no additional risk.
“We need fresh research that looks at banking and commerce in a post-Dodd-Frank world,” says Noreika. “In having that conversation, we might find opportunities to do things a little differently, and we might start a powerful and beneficial economic engine.”