When I start, as shown in the picture, Recently exited our OCC After the bank applied, many media took it as an indication that fintech companies like ours need to become a bank to survive, but the process is too difficult. They got it wrong. Figure did not withdraw its application because it could not become a bank, we did so because we were no longer interested in becoming a bank. I don’t think we are alone.
There are many compelling reasons for fintech companies to become banks, starting with the simplicity offered in terms of licensing. Today, Figure holds more than 200 state licenses for lending, servicing and money transmission. If we were a bank, we would operate as a state or national bank and export banking licenses to all states in which we do business. Having one regulator has the potential to generate significant operational and compliance savings while ensuring consistent product delivery to all customers.
Banks also have the ability (and requirement) to take FDIC-insured deposits. While some banks have experienced recent runs on deposits, deposits and other funding supports that accept deposits (such as the FHLB and the Federal Reserve window) provide lower-cost and more predictable funding than wholesale capital markets.
So why don’t fintech companies want to be a bank? There are many reasons, starting with capital requirements. Today, most mortgages are originated by nonbank institutions, in part because the punitive capital treatment banks receive on mortgages and mortgage servicing rights makes it uneconomical to originate these loans. Recent bank failures have prompted new regulatory moves to increase the capital held by big banks and how they measure risk. If approved, the rules would drive more lending out of banks and to non-bank lenders including fintech companies.
The issue of capital requirements also creates incentives to maintain a fintech presence as it grows. Specifically, banks tend to trade on multiples of book value rather than earnings, meaning bank price multiples rarely exceed 2. Fintech companies trade on a profit basis and can increase market capitalization through revenue growth and/or margin improvement. Banks can usually only do this through additional equity.
The macro backdrop of more loans shifting from banks to fintech and restrictions on valuations of listed companies led Figure to decide to withdraw our bank application. But the main reason for our exit was the view of U.S. bank regulators on public blockchains.
Figure is a pioneer in real-world asset trading on public blockchains, driving over $8 billion in locked value on the Provenance blockchain and leveraging the technology to bring significant impact in lending, securities trading, fund management and other areas. efficiency and economic benefits. more.
We also believe that the blockchain opportunity will expand as banks exit lending and trading and are replaced by deep and robust private capital markets for loans and loan securities. As this market emerges, we predict it will replicate the GSE structure—non-bank lenders adhere to a common set of underwriting standards, lock in interest rates on TBA securities and deliver loans to rating agencies. pass-through certificate.
Over time, this private capital market will benefit businesses and consumers by lowering the cost of credit and expanding access to credit. Figure and industry peers will advance the public blockchain market, replacing trust with facts, a market that requires facts to function.
The United States has always been a hotbed of innovation. The technologies that have emerged in the financial system over the past century have impacted global markets in unimaginable ways. But as long as regulators and banks themselves block the adoption of blockchain technology and other fintech solutions, we believe the banking industry will increasingly find itself on the verge of a fundamental shift in the way money flows. We hope that, over time, the merits of public blockchains will be recognized. Until then, we will continue to innovate as an independent fintech company.
Mike Cagney was the co-founder and later co-founder of SoFi number, he is the CEO. The views expressed in Fortune opinion pieces are solely those of the author and do not necessarily reflect the views and beliefs of: wealth.
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