Currently, tech companies have managed to operate around the restrictions on offering financial services as a non-bank by partnering with registered financial institutions. In these partnerships, however, the tech companies use brokered deposits to extend deposit services to regular users. Brokered deposits (derogatorily referred to as “Hot Money”) aren’t good for banks. They are temporary deposits and don’t count towards the bank’s core deposits, which reflects on its dependability. However, the Federal Deposit Insurance Corporation (FDIC) has moved to regularize these brokered deposits, offering an “in” to fintech companies that want to operate more like banks.
Changing the Rules Slightly
The FDIC has recognized the marginality of fintech apps. The corporation has taken the initiative to regularize them since the FDIC sees it as the natural progression of technology. One of the goals of the corporation’s change in rules is to ensure that if a tech company has a direct relationship with a bank, it won’t result in a brokered deposit. Another of its significant aims is to pinpoint what the definition of a broker is. The FDIC has moved to change that the definition of what a broker is, ensuring that it doesn’t include businesses that are engaged primarily in the movement of deposits.
A Power Shift Coming
While a lot of banks would benefit from removing the stipulation that brokered deposits can’t be counted as core deposits, it raises some concerns for the financial institutions. Tech companies may now have a more extensive choice of banks to work with. At current, the brokered deposit system carries so much risk that only large banks can rationalize offering it as a service to tech companies that pay for the privilege. With the new regulations, those tech companies may now have the option of choosing small banks to work with, resulting in an accessible channel for both parties to benefit from low-cost deposits that boost the bank’s dependability.