Patrick (Mc)Henry, “Give me fintech, or give me death!”
…ok, maybe not exactly. But Representative Patrick McHenry (R., N.C.) has been pretty active in introducing bills as part of his “Innovation Initiative” that is bringing fintech into the limelight on Capitol Hill. Most of the time “fintech” is discussed within government circles, it seems to be focused on consumer protections around marketplace lending; McHenry’s bill helps move the conversation to the next level.
Essentially, the bill proposes building a regulatory “sandbox” for fintech companies, similar to what the UK launched earlier this year (Singapore and other countries have either explored or launched sandboxes as well).
In simplistic terms, a sandbox allows companies to test new products, ideas, business models, etc., in a limited scope without being subject to the full scope of financial regulations. This would give companies a chance to test and vet ideas, while not imposing undue risk to the financial system. The proposed structure would require involvement from multiple government agencies (CFPB, Treasury, SEC, Fed, etc.), which concerns some in the fintech community as a fragmented system could ultimately make it more difficult to achieve meaningful success.
However, the UK sandbox seems to be going well in its first few months, and the FCA has already had to expand its team due to accepting 24 fintech firms into the sandbox, out of 69 that have applied so far.
Another bill Rep. McHenry has introduced “would require the Internal Revenue Service to use ‘website-based, real time responses’ when a lender asks the IRS for a document to verify a person’s income and other data to approve a loan.” This would greatly aid in both startups’ and banks’ quest to provide a faster service for borrowers.
While there will certainly be struggles between fintech firms and regulators, innovation is messy. Whether or not the two camps can agree on how to allow enough failure to maximize the potential of creating better products/services for the consumer still remains to be seen.
I have mentioned Lemonade a few times over the past year, including a $13MM funding round last year for the peer-to-peer insurance startup. After being in stealth mode for about a year, Lemonade has finally launched, providing homeowner’s and renter’s insurance in New York. Their model takes a 20% cut of the monthly premiums, and donates whatever is left over to the charity of your choice. They claim you can sign up and get paid on claims in a few minutes via their mobile chatbot. They are rated A-Exceptional by Demotech and have reinsurance through Lloyds and Berkshire Hathaway.
If you somehow missed the news, Wells Fargo CEO John Stumpf testified in front of the Senate Banking Committee on Tuesday regarding the up to 2 million accounts (including around 500,000 credit cards) that employees had opened on behalf of customers without their knowledge. Senators made repeated calls for him to resign and claw back compensation from the executive in charge of that division. I am sure LendingClub is glad to have the spotlight off of them for now…
About two months ago, I reported that a judge had ruled that Bitcoin was not money, partially because it is not “tangible wealth.” However, a judge in New York just ruled that Bitcoin is money, stating, “Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment.” Thus the legal standing continues to remain unclear…