- Japanese e-commerce company Rakuten wants to establish a U.S. bank charter in Utah, according to a release.
- The company said it plans to establish an industrial bank, which would offer credit cards, personal and business loans, and deposits for existing customers. The Federal Deposit Insurance Corp. (FDIC) defines industrial banks as financial institutions owned by commercial firms that are not regulated by the Federal Reserve. Utah is home to the majority of the U.S.'s industrial loan companies (ILCs).
- "We're going to focus on that customer base we already have," Lee Carter, the new head of banking development at Rakuten and a former UBS Group AG executive, told The Wall Street Journal. "That's really the community that we want to extend additional financial services to."
Several U.S. trade groups are wary of commercial businesses and financial technology firms that seek applications for ILCs, calling the lack of oversight a consumer safety issue.
The American Bankers Association said that although it considers itself a strong advocate for new bank formation, it has "serious concerns" with the company's application for an ILC charter, it said in a statement released shortly after Rakuten's announcement.
"As Japan's largest e-commerce site, Rakuten is a major technology firm engaged primarily in non-financial activities,” Rob Nichols, the trade group'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."
Nichols called for the FDIC to "rigorously review every aspect of the application" to see if it meets the relevant requirements for a charter.
The Independent Community Bankers of America, another trade group, is against corporations and fintechs obtaining ILC charters.
"There's nothing innovative about these companies trying to exploit a lighter regulatory regime under this ILC and do the same financial services that are already provided by multiple financial companies," Paul Merski, ICBA's executive vice president of congressional relations and strategy, told Banking Dive.
The ICBA distributed a policy paper this year calling for an immediate moratorium on industrial charters, calling them a loophole in the banking law.
"Not only does this create an unlevel playing field relative to community banks and other financial institutions that must meet holding company standards, but it also leaves a dangerous gap in safety and soundness oversight while violating the long-standing U.S. separation of banking and commerce activities," ICBA President and CEO Rebeca Romero Rainey said in a March statement.