businesses and is making sure that companies behind financial technology understand and follow the same rules and regulations imposed on traditional financial institutions.
The Pennsylvania Department of Banking and Securities says it wants to protect consumers and
DOBS and the banks want businesses that provide or deliver financial services to be licensed, to be aware of the laws pertaining to the service or product they offer and to adhere to the regulations and laws.
The idea is that it would avoid hurting or negatively affecting a consumer or business.
Banks want fintech companies to follow the same guidelines they have to follow when transmitting money, depositing or lending money and any other regulated financial service, said Robin Wiessmann, secretary of the Pennsylvania DOBS.
While there are no formal regulations or laws in place specifically for a fintech company, a fintech company that offers financial services in the marketplace has a legal and moral obligation to consumers and businesses, she said.
Therefore, financial technology companies will be researched by DOBS, must be licensed and will be required to do business responsibly and legally, Wiessmann said.
“The banks are concerned about fintech in the market. It is a disruptive force,” she said. “Banks are required to work with financial technology companies, and we at the department have to dissect the [fintech] company’s business model and perform outreach.”
AHEAD OF THE CURVE
Recently, DOBS brought aboard Tim Knopp as deputy secretary for nondepository institutions.
Knopp works with fintech companies such as mortgage originators, lenders, brokers, debt service companies and other entities that provide nonregulated financial services. These are companies that deliver their service through e-commerce, online or other technological means.
“Historically, we used to have to chase down a company after it violated a law or hurt the consumer so [that] they understand the applicable laws and that they needed a license,” Knopp said.
“We are trying to get ahead of it to hopefully reduce potential problems. We say, ‘Here are the laws you need to follow,’ and ‘Here is how you get licensed.’ ”
PATH TO COMPLIANCE
Knopp said these so-called fintech companies usually are people working out-of-state or at a remote location.
Often, it’s someone online with a technology background, perhaps someone creating and managing an app.
“They may not recognize that they are in the financial services industry and what laws pertain to this business they started,” Knopp said, adding that it is his job to put fintech companies on the path to doing things lawfully.
Bank representatives say that they have established partnerships with fintech companies and that working with them is inevitable in their industry’s high-tech world.
Financial officials say they recognize and support state regulators’ efforts to level the playing field when it comes to the business of money. They say fintech competitors need to understand and obey the same laws in the financial services industry.
At Customers Bank in Berks County, president Richard Ehst said the Pennsylvania DOBS has every right to investigate fintech companies, make sure they are following the appropriate regulations and are licensed by DOBS.
“The Department of Banking is within its rights to want to understand the financial services being offered by fintech companies, to make sure consumers and businesses are being treated fairly and responsibly,” Ehst said.
Customers Bank, which has six branches in Pennsylvania, also runs BankMobile, a mobile banking service provider with 1.2 million followers.
Ehst said he does not see BankMobile as a traditional fintech company. He considers fintech to be a broad term, encompassing many services.
“Fintech is supported by private industry, mortgage banks, private equity firms and hedge funds,” Ehst said.
Customers Bank is a big supporter of financial technology, and Ehst said many traditional banking institutions believe fintech companies have an “unfair advantage.”
‘WAKE UP, PEOPLE’
Ehst said fintech needs to be accepted as a way of doing business in a tech-savvy environment.
He said that many large banks are looking at acquiring fintech companies for the benefit of their business.
“To those that do not embrace it, I say, ‘Wake up, people. This is where the market is going,’ ” he said. “Everyone needs to get on board in this fintech world and provide these capabilities in the future.”
He added that he stands behind DOBS and its efforts to understand and regulate fintech.
ALIGNMENT WITH BANKS
In Souderton, Michael Keim, president of Univest Bank and Trust Co., said that he concurs with DOBS efforts to regulate fintech companies. The bank, which has a financial office in Lower Macungie Township, has worked with several fintech companies.
In Keim’s experience, some fintechs promise to provide customers with a wide range of financial services.
“We work with these companies, and we have not had a problem partnering with them,” but the services they deliver need to be in line with banks, Keim said.
“Whether they facilitate a single financial transaction or the totality of a transaction, they must be fair to the consumer,” he said, and meet the same requirements as a regulated bank.
Spokesman Alan Aldinger at PNC Bank Corp., which has locations throughout the Greater Lehigh Valley, said it is “fully supportive of attention and resources the Pennsylvania Department of Banking and Securities is focusing on this issue. It is critically important to protect our customers and our institutions.”
Aldinger said PNC is a nationally chartered bank, working with national regulators on issues related to financial services technology.
He said consumers can expect to benefit from that attention given to fintech regulation.
At BB&T Corp., spokesman David White said the bank, which has locations throughout the Greater Lehigh Valley, is investing up to $50 million in fintech services.
It intends to invest in and acquire fintech companies, explore expansion of the bank’s digital services and partner with fintech companies to become more innovative, as well as enhance payment technologies.
BB&T has not offered specifics in regard to its intentions to extend its reach into fintech.
BLENDING OF THE INDUSTRIES
Michael Bailey, chief operating officer at The Neffs National Bank, based in North Whitehall Township, said Neffs operates under the direction of the federal Office of the Comptroller of the Currency. The agency oversees laws relating to national banks.
He said that he, too, has heard that large banks are acquiring fintech companies for in-house purposes.
“With the OCC taking a favorable view of fintech charters, a future blending of banking and fintech is more likely than not,” Bailey said.
At Univest, Keim said that no matter what way financial institutions look at it, fintech companies are competition and here for the long term.
Univest is prepared to invest in expanding its financial services technology, and that includes services that fall under the definition of fintech as well as back office technology.
“There are always going to be competitors out there,” he said. “So as a bank, we need to make investment in financial technology and stay competitive in the marketplace.”