CSBS Issue Talking Points

Innovation

CSBS Position

The U.S. financial services marketplace is one of the most innovative and competitive in the world. In the past 25 years, state-regulated nonbanks have been responsible for significant innovations in financial services, including mobile payments, online lending, and electronic mortgage applications. States continue to promote safe innovation by strengthening consumer protection and risk management while minimizing regulatory burden for industry.

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 Q1 2021, a total of 142 state-licensed companies filed the Money Service Business (MSB) Call Report met the CSBS definition of a fintech company (multiple state licenses with two or fewer physical locations). • As of the end of July 2021, a total 71 companies acquired their first money transmission license. Thirty- three of those companies are licensed in only one state, 26 are now licensed in two to nine states and another 12 are licensed in 10 or more states. • State regulators protect consumers when companies exit the market. 30 companies that held money transmitter licenses in 2020 are no longer licensed as of the end of July. • In 2020, the six largest money transmitters moved 68% ($1.24 trillion) of the industry’s funds, leaving 300 companies competing for the remaining 32%. 214 of those companies make up the bottom 1% of the market. • In 2020, the top 10 mortgage companies were responsible for 26.5% of the market ($686 billion). The top 100 companies were responsible for 57.3% ($1.5 trillion). Total volume in 2020 was $2.6 trillion, leaving $1.1 trillion in volume for the remaining 14,084 companies. State collaboration and advancements in technology are making the state system more effective and reducing regulatory burden. • States are implementing a series of industry recommendations as part of CSBS’s Vision 20 20 initiative, including: o The Multistate Money Services Businesses Licensing Agreement (MMLA), which streamlines the money transmitter licensing process among 28 states, and o MSB Networked Supervision, which will allow 75+ MSBs to operate nationwide with just one comprehensive exam. Talking Points

FOR STATE REGULATOR USE ONLY