The Global Rise of Online Banking
More people are using online lending platforms to fulfill their financial service needs today than ever before. The global volume of new fintech credit – or credit that is facilitated by online platforms not operated by commercial banks – has risen from $11 billion in 2013 to $284 billion in 2016. Although more recent data is hard to come by, all signs point to the continuing growth of fintech credit worldwide.
China had the largest fintech market in 2016, followed by Europe and the United States. China’s fintech market has slowed recently due to a government crackdown on peer-to-peer lending in 2017. Unlike China, Europe has experienced substantial growth in fintech services, primarily driven by favorable regulations and a massive amount of venture capital. In fact, European companies have captured 70% of the $1.2 billion invested in banking start-ups so far this year.
Many European fintech companies, like Monzo and Revolut, have announced plans to enter the United States once they have secured enough capital. Although there may be opportunity for growth in the U.S. market, European companies will likely face a more heavily regulated environment here than back home.
Yet, despite more regulation, fintech has expanded quickly in the United States. According to the Bank of International Settlements (BIS), more than a third of all unsecured personal loans were done on online platforms in 2017. Even in the mortgage sector, the U.S. fintech lender Quicken Loans “was the single largest mortgage originator in late 2017.”
There are also signs that federal regulators have become more welcoming of innovation in recent years. Earlier this summer, the U.S. Office of the Comptroller of the Currency (OCC) announced that it will begin accepting applications for national bank charters from nondepository financial technology companies engaged in banking businesses.
“Over the past 150 years banks and the federal banking system have been the source of tremendous innovation that has improved banking services and made them more accessible to millions,” said Comptroller of the Currency Joseph M. Otting. “The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy.”
In another recent development, the OCC granted Varo Bank – a mobile-only lender – preliminary approval to become a national bank (this is separate from the fintech charter that OCC recently introduced). Although Varo Bank still needs approval from the Federal Deposit Insurance Corporation to obtain insurance and Federal Reserve membership to become a national bank, it is on track to become the first national, all-mobile bank in the United States.
Despite the seemingly endless opportunities for online banking, continued growth is not guaranteed. Less friendly regulators or a heavy-handed Congress can make it very difficult for fintechs to operate in the United States.