Why the US Consumer Loses with Loose Change

The antiquated US Financial regulatory framework continues to undermine technical innovation and hold consumers back from making the most of their money. And most of them don’t even realize it.  

As far back as the late 90s, the US Regulatory frameworks for banking services in technology have yielded to the pressure of lobbyists and incumbents rather than evolving to meet changing industry dynamics, customer opportunities and increasingly global marginalization in tech innovation. While the OCC FinTech Charter is a starting point, legislators and regulators should be aggressively pushing for initiatives to enable competitive technical stacks.  

Capitalism by Any Other Name

In the 1900s, companies like BMW, GE, GM, VW, Target, Goldman Sachs and Toyota were granted a creative means of undertaking banking activities by creating an Industrial Loan Corp License in select states. In some instances, the banking activities of these companies were more valuable than the bankrupt core business, as was the case with Conseco. However, there have been no hearings or approved ILCs that would receive FDIC insurance in almost a decade.

Walmart and Home Depot are still in a holding pattern, yet Target and GM were approved— begging the question of why and what’s the criteria for consideration? In fact, the Independent Community Bankers of America has stressed that Congress should close the ILC loophole, stating it not only threatens the financial system but creates an uneven playing field for community banks, allowing them to play on their relationships to essentially pillage customers.

And, to add insult to injury, over the past two decades, the collective assets of these ILCs have increased by more than 5,000% and some of them are now among the largest financial institutions in the country.  

Finding a Loophole

We’re watching as fintech Titans, Affirm and SoFi, are applying for Industrial Loan Licenses, whereas other fintech companies, TransferWise and Coinbase, have created “clever” workarounds by partnering with innovative community banks like Cross RiverBank of New Jersey. PayPal, the largest and oldest fintech company with over $13BN in customers’ loose change has been plagued by the FDIC question since its earliest days. Now, as they continue expanding with lending via SWIFT Financial, you wonder when PayPal will start returning money to their customers rather than taking it from them.

Loose Change Infographic.pngOutsourcing Innovation

When a communist country like China, whose PayPal equivalent Ant financial, nets users an annual return of close to 5% versus PayPal’s 0% on funds left in your account, you know something’s gotta give. But the current regulatory frameworks don’t really lend to PayPal making that change anytime soon. And if it doesn’t benefit them, why would they do it of their own volition? When you stack Ant Financial’s Yu’E Bao product—which essentially translates to “Loose Treasure”—and that has 325 Million customers with $1.14TN in assets earning about 5% annually, and you compare it to Paypal’s 179 Million customers with $13BN earning nothing, you wonder what’s broken in the US system.

It’s Time to Put Change Back in America’s Pocket

If they aren’t already, Senator Warren and the CFPB should be looking overseas to see how to put money in consumers pockets, not keep the companies that people prefer from being insured, monitored and innovating. In the end, regulations need to help support and drive innovation so we all win, whether that’s through ILCs or sharing the “loose change”.


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