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What's in a URL? For Chime, four little letters in one URL turned out to make a big difference for them and helped to highlight a delicate relationship between innovators and regulators.
Chime has agreed to stop using the term "bank" in their marketing after a Settlement with The California Department of Financial Protection. To help us unpack what that ruling means and what it says about fintech at large, we sat down with our Senior Counsel, Michael Chung.
Michael helped us understand the nuance in the settlement, what it means for the industry and how much the term “bank” even matters for the future of fintech.
Fintech innovators like Chime try to meet customers where they are. As a newcomer in the financial sector, they might have a bit more flexibility or reach than a traditional financial institution. But, how should they manage paving new ways to solve customer problems while abiding to regulations that may not have anticipated their exact use case?
To Michael, the Chime settlement represents a key step in the right direction for fintech innovators and regulators working alongside one another.
Michael sees “this as a regulator that is more or less supportive of Chime, but wanting to provide guidance to the industry.”
You can see that support, as Michael points out, in the recital section of the settlement where Chime's mission is listed in glowing terms that almost sound like they're written by a marketer and not a regulator. Every line in that recital has to be approved by both parties, giving Michael the impression the regulator wants to work with, and not directly against, Chime and fintech innovation at large.
You can see this in the details. The always dreaded “marketing review” for sponsor banks and fintech(s) has always been a grey area. The rub is obvious; the word “bank” is often used but the brand does not have a banking charter.
The tension here stems from how to address a problem in a way a customer will identify with and understand and how to maintain your good standing with regulations and regulators. If you're introducing your business and tell a customer, "We help you with the banking problems your bank can't solve...but we're not a bank." that customer might not be able to parse the nuance of that message and could walk away confused. But you will walk away remaining in good standing with regulators for being correct, even if your statement wasn't clear to your customer.
If you do adopt the term "bank," your customer might understand your company's use case much faster, but regulators might have a few words for you. The key is finding that balance so it’s clear to the customer but also approved by regulators.
In Michael's eyes, this ruling helps companies like Chime and regulators like the California Department of Financial Protection find the middle ground between the two — giving customers easy access to the fintechs that are meeting their needs, but also making sure the fintech's charter and purpose is mapped out clearly.
This settlement sets a precedent that will create clarity, according to Michael. “I’m hoping that this is a step in the direction of fintechs and regulators collaborating more or even a sign of support to bring to market products that better serve the public.”
“[We should have] gratitude that this came out on a good actor,” he explained, pointing out that Chime brings value and assistance to millions of consumers. “In every industry, in every vertical, there are bad actors.” It’s a good thing for the fintech ecosystem that this settlement has come about with Chime specifically.
“I’m hoping we can get past this whole ‘bank or not bank’ argument,” said Michael. He noted that by reducing the barriers to financial access, while keeping the necessary safeguards, you can improve lives. That should be something the fintech ecosystem as well as regulators can agree on: “The earlier you can get someone to think about their finances, the more responsible that person can be.
Give this episode a quick listen. At under twenty minutes, you can speed through it on your daily walk or lunch time. Have thoughts you want to share? Drop us a line at email@example.com or email me directly at firstname.lastname@example.org and let’s chat!