ABA voices 'serious concerns' about e-commerce firm's ILC bid

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WASHINGTON — A key banking industry trade group sounded the alarm Friday over a Japanese e-commerce provider's application to own a U.S. industrial loan company.

The American Bankers Association's chief executive said the group has "serious concerns" about Rakuten's attempt to enter the U.S. market with a Utah-based charter. The company, which operates a membership program in which users earn cash-back rewards for buying goods from participating merchants, says the ILC would hold shopper deposits. Rakuten also plans to offer a credit card.

"As Japan’s largest e-commerce site, Rakuten is a major technology firm engaged primarily in non-financial activities,” Rob Nichols, the ABA's president and CEO, said in a statement. “Allowing Rakuten to participate in banking activities would raise important questions about the free flow of credit, consumer privacy and possible conflicts of interest — questions not raised by current ILC charter holders.”

Regulators are grappling with the appropriate steps for letting fintech firms into the banking system. But the ILC charter has faced broader scrutiny for years since it allows nonfinancial firms to gain entry into the banking system. Before the financial crisis, community banks succeeded in blocking big-box retailers like Walmart from getting a charter.

Rakuten is applying for a charter at the same time that another major fintech firm, Square, is awaiting approval from the Federal Deposit Insurance Corp. on its application.

The Square application drew opposition from the Independent Community Bankers of America, but not from the ABA.

Rakuten already has a shopper rewards card program, but an ILC charter would allow it to offer banking services without having to meet bank holding company requirements.

Bankers argue that the ILC charter could allow massive retailers to enter banking, crossing a traditional line that separates banking and commerce.

“We look forward to learning more details and discussing the implications of this application with our members, including what it means for public confidence in the banking system,” Nichols said. “In the meantime, we call on the FDIC to rigorously review every aspect of the application to see if it meets the relevant requirements for this charter, including community need, keeping in mind the broad commercial rather than financial nature of Rakuten’s business and the significant questions that raises.”

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ILCs Digital banking Licenses and charters Rob Nichols American Bankers Association
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