'Today the FDIC made FinTech's Obsolete' - I keep seeing this.. It's not the whole truth, and here's why 👇 Fintech's aren't obsolete, they always have had to fulfill the same CIP requirements - what it does create is far more friction between onboarding processes and in the daily reconciliation (if that is intended here). FinTech's partner with smaller banks for the reason that each side of the partnership had something to gain. They don't view each other as competitors. Currently, smaller banks lack resources to reconcile the impossible number of accounts currently sitting in an FBO status. Resulting in those same banks to either choose to exit the fintech business with the cost for those deposits far exceeding the value needed to hire to scale; or pray for clarification on the reconciliation notes over the next 60d. It narrows the margin of error for smaller banks, surely. But, its not doom or gloom (remember the FBO issues years back?) The problem fintech's solve was never CIP and frankly, this is more a FBO issue than a CIP issue - although I see a lot of people talking about CIP. Regarding Fintech's being obsolete - its silly. FinTech's excel because of 4 pillars (outside of consumer/generation habits) 1) Cleaner onboarding experience (less friction, less hassle) 2) Robust set of financial tools via niche platforms 3) Rewards programs not offered @ national banks 4) Ability to move funds faster than big banks (hence Zelle partnering w/ the big 3) However, there is a NEW problem: Who do fintech's partner with + who do regional/smaller banks scale with? Who absorbs cost, and who sees ROI? A pinnacle moment for banking-as-a-service. Good news is
What I'll be calling the FBO "Synapse Rule" dropped at today's FDIC board meeting: The official name is the "Notice of Proposed Rulemaking on Requirements for Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors." The rule is intended to ensure that the FDIC could quickly and accurately pay out deposit insurance claims in the event a bank holding end-user funds in custodial accounts failed. The rule would require banks to maintain records of "the beneficial owners of the custodial deposit account, the balance attributable to each beneficial owner, and the ownership category in which the beneficial owner holds the deposited funds," including by specifying an electronic file format. The rule would further require banks have internal controls that include maintaining accurate account balances and conducting reconciliations against beneficial ownership records no less frequently than at the close of business daily. The rule would apply to accounts that meet three criteria: "(1) the account is established for the benefit of beneficial owners; (2) the account holds commingled deposits of multiple beneficial owners; and (3) a beneficial owner may authorize or direct a transfer through the account holder from the account to a party other than the account holder or beneficial owner."