Figure, a fast-growing fintech startup, recently retracted its bid to become a bank, sparking speculation that the process was too challenging. However, the true reason behind Figure’s decision was its lack of interest in becoming a bank, rather than an inability to do so. While there are benefits to being a bank, such as streamlined licensing and access to FDIC-insured deposits, drawbacks like capital requirements and limitations on growth also exist. After assessing these factors, Figure decided that the advantages were outweighed by the constraints that come with a banking charter. The fintech company will instead concentrate on alternative avenues for expansion and collaboration, focusing on providing innovative financial solutions and services without the restrictions that traditional banks face.

Non-Bank Lenders Impact Fintech Decisions

One factor influencing fintech firms’ decision to not become banks is the growing presence of non-bank lenders in the mortgage sector. Regulatory adjustments have made mortgage origination financially unfeasible for banks, leading to a shift in lending from banks to fintechs and other non-bank lenders. This trend is expected to continue, possibly reshaping the financial industry landscape.

As non-bank lenders gain traction and expand their presence in the mortgage sector, fintech firms may find it more advantageous to focus on innovation and capitalize on opportunities within this space. The increasing migration of mortgage lending from banks to alternative lending sources could create a more competitive environment, motivating fintechs to develop strategic partnerships and unique offerings that set them apart in the market.

Regulators and Public Blockchains

The main reason for Figure’s withdrawal of its application was the U.S. bank regulator’s stance on public blockchains. The company has significantly contributed to securing over $8 billion in value on its Provenance Blockchain and introduced numerous advantages in lending, securities trading, and fund administration. Despite these regulatory challenges, Figure remains committed to utilizing blockchain technology to optimize and streamline financial services, offering cost-effective and efficient solutions to its customers.

U.S. bank regulators have expressed concerns about the transparency, security, and reliability of public blockchains, leading to a cautious approach toward their implementation in the financial sector. Nonetheless, Figure is dedicated to leveraging blockchain technology to enhance and streamline financial services, providing cost-effective and efficient solutions for its customers.

Opportunities in Blockchain Technology

Figure argues that when banks reduce lending and trading activities, new opportunities will arise for blockchain technology to lower credit costs and broaden access. As banks cut back on traditional financial services, blockchain technology is well-positioned to fill the gap, providing fast, secure, and cost-effective transactions for both institutions and individuals. As a decentralized and transparent system, blockchain has the potential to increase financial inclusion, enabling more people to access credit and banking services with reduced fees and improved convenience.

Slow Adoption of Blockchain and Fintech Solutions

Despite the U.S. being an innovation hub, regulators and banks have been slow to adopt blockchain technologies and other fintech solutions. This has led to the suspicion that the banking sector may become increasingly marginalized in favor of alternative financial methods. As a result, traditional financial institutions risk losing their competitive edge, as more customers are attracted to the efficiency, convenience, and adaptability offered by these alternative solutions. To remain relevant, banks must adapt, partnering with fintech innovators to develop and integrate blockchain technology, to modernize their platforms and meet growing consumer expectations.

Driving Innovation as an Independent Fintech

Figure intends to maintain its role in driving innovation in the financial sector as an independent fintech company while also hoping for the eventual recognition of the value of public blockchains. By operating autonomously, Figure aims to consistently develop cutting-edge solutions to address existing challenges and inefficiencies within the financial industry. Additionally, the company seeks to raise awareness and recognition of public blockchains’ potential to revolutionize various aspects of the financial sector.

FAQ

Why did Figure retract its bid to become a bank?

Figure retracted its bid to become a bank because it decided that the advantages of being a bank were outweighed by the constraints that come with a banking charter. The company wants to focus on providing innovative financial solutions and services without the restrictions that traditional banks face.

How do non-bank lenders impact fintech decisions?

As non-bank lenders gain traction and expand their presence in the mortgage sector, fintech firms may find it advantageous to focus on innovation and capitalize on opportunities within this space. This shift could create a more competitive environment, motivating fintechs to develop strategic partnerships and unique offerings that set them apart in the market.

What is the main reason behind Figure’s withdrawal of its banking application?

The main reason for Figure’s withdrawal of its banking application was the U.S. bank regulator’s stance on public blockchains. Despite these regulatory challenges, Figure remains committed to utilizing blockchain technology to optimize and streamline financial services.

What opportunities does blockchain technology provide?

Blockchain technology offers opportunities for faster, secure, and cost-effective transactions. As banks reduce lending and trading activities, blockchain technology can lower credit costs and broaden access, providing an alternative to traditional financial services. Additionally, blockchain has the potential to increase financial inclusion, enabling more people to access credit and banking services with reduced fees and improved convenience.

Why is the adoption of blockchain and fintech solutions slow?

Regulators and banks in the U.S. have been slow to adopt blockchain technologies and other fintech solutions, possibly due to concerns about the transparency, security, and reliability of these systems. This has led to the suspicion that the banking sector may become increasingly marginalized in favor of alternative financial methods, causing traditional financial institutions to lose their competitive edge.

How does Figure plan to drive innovation as an independent fintech company?

Figure intends to maintain its role in driving innovation in the financial sector by operating autonomously and consistently developing cutting-edge solutions to address existing challenges and inefficiencies within the financial industry. In addition, the company seeks to raise awareness and recognition of the potential of public blockchains to revolutionize various aspects of the financial sector.

First Reported on: fortune.com
Featured Image Credit: Photo by Google DeepMind; Pexels; Thank you!