CSBS Issue Talking Points - March 2021

Innovation

CSBS Position The U.S. financial services marketplace is one of the most innovative and competitive in the world. State-regulated nonbank financial companies are responsible for the most significant financial innovations of the past 25 years, from mobile payments and online lending to electronic mortgage applications. States are well positioned to shepherd the innovations of the future with a regulatory approach that encourages diversity in size and scope, a commitment to streamlining licensing and reducing regulatory burden and an enthusiasm for enabling responsible innovation that benefits consumers and local economies alike. Summary State regulators have pioneered the adoption of new regulatory technology and implemented innovative new cooperative agreements to reduce regulatory burden and streamline the licensing process for companies while creating supervisory efficiencies for regulators. Why It Matters to State Regulators Supporters of preemption and the OCC’s fintech charter often cite innovation and the need for more products and services for underserved consumers as reasoning for preemption. Supporters claim that state regulation hinders innovation. The reality is that states are laboratories of innovation and the state system is directly responsible for much of the financial services innovation that we see today. The state system encourages new entrants and enables them to scale quickly, creating an innovation and competitive nonbank marketplace. • States support a diverse range of business models in financial services by aligning companies’ underlying business activity – rather than technology – with existing state law. • As of Q2 2020, 129 state-licensed companies who file the Money Service Business (MSB) Call Report met the CSBS definition of a fintech company (multiple state licenses with two or fewer physical locations). • In 2020, 75 companies acquired their first money transmission license via the state nonbank licensing platform, the Nationwide Multistate Licensing System (NMLS). Today, 52 of those companies are licensed in only one state, 14 are now licensed in two to nine states, and another 9 are licensed in 10 or more states. • State regulators protect consumers when companies exit the market. 35 companies that held money transmitter licenses in 2019 are no longer licensed, generating few headlines and little to no customer impact. • In 2019, the six largest money transmitters moved 70% ($915 billion) of the industry’s funds, leaving more than 275 other companies competing for the remaining 30%. 200 of those 275 companies make up the last 1% of the market. • In 2019, the largest 10 mortgage companies were responsible for 24.4% of the market ($314 billion). The top 100 companies were responsible for 53.8% ($694 billion). Total volume in 2019 was $1.29 trillion, leaving $598 billion in volume for the remaining 13,114 companies. Talking Points

FOR STATE REGULATOR USE ONLY