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Isn’t a banking license mandatory for a company that offers financial services? And if so, why does it matter what else a company does as long as it lives up to

by runeks 7y ago

Isn’t a banking license mandatory for a company that offers financial services? And if so, why does it matter what else a company does as long as it lives up to regulations? If it’s problematic that a licensed tech company is offering financial services, isn’t there something wrong with the requirements for acquiring this license? Seems to me that if Facebook lives up to the regulations, it should be allowed to acquire a banking license. And if there’s something problematic about this, the requirements for acquiring a banking license should be changed, and applied to everyone.

dragonwriter 7y ago
> Isn’t a banking license mandatory for a company that offers financial services? No, banking is a subset of financial services, and not all financial services firms are banks.
- wil421 7y ago
  PayPal is a good example of a financial service company that’s not a bank.
  - runeks 7y ago
    But they need a license, right?
    - dragonwriter 7y ago
      PayPal is a money transmitter, which requires a different federal license than a state or federal banking license.
    - deleted 7y ago
      [deleted]
  - wheelerwj 7y ago
    Thats not 100% true. Paypal may very well own a bank, or at the very least cooperates with a bank, to stay in compliance with some of the services its offers. Financial services companies are often a complex arrangement of licensed and/or white-labeled services that are necessary to maintain compliance with regulations in the multitude of jurisdictions in which they operate.
    - wil421 7y ago
      PayPal does not have a banking license so they must partner with banks to other some services. Similar to Apple offering 0% loans on iPhones with Citizens or loans with interests for Macs using a Barclay credit card.
      - realityking 7y ago
        While a little off-topic, since this is an article about the US, PayPal does have a European banking license: https://web.archive.org/web/20161122071031/http://www.e-comlaw.com/e-finance-and-payments-law-and-policy/article_template.asp?ID=887 https://web.archive.org/web/20161122071031/http://www.e-coml...
cmiles74 7y ago
Many tech companies are also in the business of advertising. It seems clear to me on the face of it that combining an advertising company with a bank is a fundamentally bad idea and would be a clear conflict of interest. An advertising company that "knows where you click", serves you customized ads and has full access to your bank account information strikes me as a step too far. I agree that even today companies like Facebook, Amazon and Google have way too much of this information already. A move like this may be the first step into teasing some of this data apart and, ideally, preventing one company from collecting it all.
- bilbo0s 7y ago
  >An advertising company that "knows where you click", serves you customized ads and has full access to your bank account information strikes me as a step too far... Here's the thing though, you realize you just described Walmart right? I mean, the HN crowd probably doesn't overlap much with the market that Walmart serves with their financial services, but it's actually a significant portion of the american populace. For them, Walmart is the marketplace, the ad firm, and the financial services provider all in one. So what everyone's asking is: 1 - why is there no attempt to go after Walmart? or big finance? and 2 - why are we doing this anyway, because what we really want is a HIPAA-like law criminalizing the sharing of personal data for commercial purposes? Such a law would be more simple, and would stop more privacy violating behaviors in their tracks. These are very reasonable questions, given the assumed intent of the proposed legislation.
  - cmiles74 7y ago
    I agree, those are both good points! Ideally this legislation would also prevent Walmart from minting their own currency or opening up their own bank (conveniently placed in their stores and available on their website). My understanding is that Walmart is more like Amazon-plus-physical-stores at this point; they do not yet provide their own bank. If they did, maybe they could be cast as a "tech company". IMHO, the concern over privacy is _my_ concern; I'm not sure it's something this piece of legislation is worried about. Based on the article it seems like the concern here is more about Facebook creating their own currency and less about consolidation of people's private data. I would guess no one in government likes Bitcoin much and it's one saving grace is it's lack of widespread popularity among the general population. Facebook could conceivable make Libra so easy to use that it could turn into a real thing.
marak830 7y ago
Perhaps we should start thinking about separation of powers such as modern democracy(eg separation of church and state). While not directly comparable, it's imo a good place to start. Advertising companies perhaps shouldn't also be selling products (what's to stop them pushing their own product vs someone else's), social media vs banking (a SM can push their Bank, or similar service though we'll, that would be advertising wouldn't it). This isn't a terribly well fleshed out thought, but hopefully a conversation starter.
- Mvhsz 7y ago
  Good point. There's a precedent for separating industries when it's in the public interest [0]. I think the argument needs to be that housing both industries under a single roof creates a conflict of interest that's too strong to be managed through normal regulatory actions like fines. [0] https://en.wikipedia.org/wiki/Separation_of_investment_and_retail_banking https://en.wikipedia.org/wiki/Separation_of_investment_and_r...
  - iguy 7y ago
    There's also a precedent for preventing companies with a monopoly in something from expanding into other businesses, like Bell. Clearly facebook isn't a recognised regulated monopoly like that, but there are similarities.
- api 7y ago
  Right now it seems we are heading for the CHOAM company. (Fictional company in the Dune 'verse that does everything.) I've joked that Amazon is CHOAM and SpaceX is Weyland-Yutani (from Alien). There do seem to be consolidation / de-consolidation cycles in business though. In the 1980s people also talked about the birth of EverythingCorps. You can see it a lot in 80s sci-fi. In the 90s you had the opposite trend.
  - pbhjpbhj 7y ago
    How about then Amazon becomes the state, viola (sic) state controlled production, give everyone an equal share and we have Communism!
el_cujo 7y ago
For whatever a banking license doesn't cover, requiring more regulation/oversight doesn't seem unreasonable to me, but straight up keeping tech companies out is silly. Smells like big financial institutions are probably lobbying to keep the new kids out of their sphere.
- roboys 7y ago
  They know what they are protecting. The financial institutions pocket 20% of global GDP by providing very simple, cheap & easily automatable services, from a tech standpoint.
rmah 7y ago
There are many different sorts of financial services licenses both at the organizational and individual levels: banking licenses, broker-dealer licenses, investment advisory licenses, money-transfer licenses etc. From different federal agencies, state regulators, or industry associations. You can do certain things given certain licenses or be prohibited from doing certain things. Some licenses are granted to companies. Some to individuals. Plus, there are a blizzard of non-license based regulations covering a wide range of financial services activities. It's not necessarily problematic that a tech company gets a license. But I think that some services require that officers of the company have specific licenses, which may be an issue. Or that the company have certain safeguards in place. Or certain communications (or communications blockage) structures. Etc. The regulations are fairly complex and intensive -- I suspect even many larger tech companies would be leery about entering this minefield.
meitham 7y ago
Banking licence is only needed when you're dealing with traditional currency, not when you are making your own currency. Starbucks card, digital game companies are all examples of a currency.
- inlined 7y ago
  While I’m not disputing your facts, I’m curious how that lines up with the fact that (IIRC) gift cards are considered loans. That was the crux of how RadioShack argued that filing bankruptcy allowed them to invalidate outstanding gift cards.
downrightmike 7y ago
No, because there are intermediaries that allow non banks to use their tech, like venmo/paypal acts as a broker, and therefore has access to all the banking services they need to run their money around. And they are very careful to stay in that definition so they don't have to deal with bank regulations. I believe Vice media did a good interview where they cover this specifically.

by runeks 7y ago

dragonwriter 7y ago

> Isn’t a banking license mandatory for a company that offers financial services? No, banking is a subset of financial services, and not all financial services firms are banks.

wil421 7y ago
PayPal is a good example of a financial service company that’s not a bank.
- runeks 7y ago
  But they need a license, right?
  - dragonwriter 7y ago
    PayPal is a money transmitter, which requires a different federal license than a state or federal banking license.
  - deleted 7y ago
    [deleted]
- wheelerwj 7y ago
  Thats not 100% true. Paypal may very well own a bank, or at the very least cooperates with a bank, to stay in compliance with some of the services its offers. Financial services companies are often a complex arrangement of licensed and/or white-labeled services that are necessary to maintain compliance with regulations in the multitude of jurisdictions in which they operate.
  - wil421 7y ago
    PayPal does not have a banking license so they must partner with banks to other some services. Similar to Apple offering 0% loans on iPhones with Citizens or loans with interests for Macs using a Barclay credit card.
    - realityking 7y ago
      While a little off-topic, since this is an article about the US, PayPal does have a European banking license: https://web.archive.org/web/20161122071031/http://www.e-comlaw.com/e-finance-and-payments-law-and-policy/article_template.asp?ID=887 https://web.archive.org/web/20161122071031/http://www.e-coml...

cmiles74 7y ago

Many tech companies are also in the business of advertising. It seems clear to me on the face of it that combining an advertising company with a bank is a fundamentally bad idea and would be a clear conflict of interest. An advertising company that "knows where you click", serves you customized ads and has full access to your bank account information strikes me as a step too far. I agree that even today companies like Facebook, Amazon and Google have way too much of this information already. A move like this may be the first step into teasing some of this data apart and, ideally, preventing one company from collecting it all.

bilbo0s 7y ago
>An advertising company that "knows where you click", serves you customized ads and has full access to your bank account information strikes me as a step too far... Here's the thing though, you realize you just described Walmart right? I mean, the HN crowd probably doesn't overlap much with the market that Walmart serves with their financial services, but it's actually a significant portion of the american populace. For them, Walmart is the marketplace, the ad firm, and the financial services provider all in one. So what everyone's asking is: 1 - why is there no attempt to go after Walmart? or big finance? and 2 - why are we doing this anyway, because what we really want is a HIPAA-like law criminalizing the sharing of personal data for commercial purposes? Such a law would be more simple, and would stop more privacy violating behaviors in their tracks. These are very reasonable questions, given the assumed intent of the proposed legislation.
- cmiles74 7y ago
  I agree, those are both good points! Ideally this legislation would also prevent Walmart from minting their own currency or opening up their own bank (conveniently placed in their stores and available on their website). My understanding is that Walmart is more like Amazon-plus-physical-stores at this point; they do not yet provide their own bank. If they did, maybe they could be cast as a "tech company". IMHO, the concern over privacy is _my_ concern; I'm not sure it's something this piece of legislation is worried about. Based on the article it seems like the concern here is more about Facebook creating their own currency and less about consolidation of people's private data. I would guess no one in government likes Bitcoin much and it's one saving grace is it's lack of widespread popularity among the general population. Facebook could conceivable make Libra so easy to use that it could turn into a real thing.

marak830 7y ago

Perhaps we should start thinking about separation of powers such as modern democracy(eg separation of church and state). While not directly comparable, it's imo a good place to start. Advertising companies perhaps shouldn't also be selling products (what's to stop them pushing their own product vs someone else's), social media vs banking (a SM can push their Bank, or similar service though we'll, that would be advertising wouldn't it). This isn't a terribly well fleshed out thought, but hopefully a conversation starter.

Mvhsz 7y ago
Good point. There's a precedent for separating industries when it's in the public interest [0]. I think the argument needs to be that housing both industries under a single roof creates a conflict of interest that's too strong to be managed through normal regulatory actions like fines. [0] https://en.wikipedia.org/wiki/Separation_of_investment_and_retail_banking https://en.wikipedia.org/wiki/Separation_of_investment_and_r...
- iguy 7y ago
  There's also a precedent for preventing companies with a monopoly in something from expanding into other businesses, like Bell. Clearly facebook isn't a recognised regulated monopoly like that, but there are similarities.
api 7y ago
Right now it seems we are heading for the CHOAM company. (Fictional company in the Dune 'verse that does everything.) I've joked that Amazon is CHOAM and SpaceX is Weyland-Yutani (from Alien). There do seem to be consolidation / de-consolidation cycles in business though. In the 1980s people also talked about the birth of EverythingCorps. You can see it a lot in 80s sci-fi. In the 90s you had the opposite trend.
- pbhjpbhj 7y ago
  How about then Amazon becomes the state, viola (sic) state controlled production, give everyone an equal share and we have Communism!

el_cujo 7y ago

For whatever a banking license doesn't cover, requiring more regulation/oversight doesn't seem unreasonable to me, but straight up keeping tech companies out is silly. Smells like big financial institutions are probably lobbying to keep the new kids out of their sphere.

roboys 7y ago
They know what they are protecting. The financial institutions pocket 20% of global GDP by providing very simple, cheap & easily automatable services, from a tech standpoint.

rmah 7y ago

There are many different sorts of financial services licenses both at the organizational and individual levels: banking licenses, broker-dealer licenses, investment advisory licenses, money-transfer licenses etc. From different federal agencies, state regulators, or industry associations. You can do certain things given certain licenses or be prohibited from doing certain things. Some licenses are granted to companies. Some to individuals. Plus, there are a blizzard of non-license based regulations covering a wide range of financial services activities. It's not necessarily problematic that a tech company gets a license. But I think that some services require that officers of the company have specific licenses, which may be an issue. Or that the company have certain safeguards in place. Or certain communications (or communications blockage) structures. Etc. The regulations are fairly complex and intensive -- I suspect even many larger tech companies would be leery about entering this minefield.

meitham 7y ago

Banking licence is only needed when you're dealing with traditional currency, not when you are making your own currency. Starbucks card, digital game companies are all examples of a currency.

inlined 7y ago
While I’m not disputing your facts, I’m curious how that lines up with the fact that (IIRC) gift cards are considered loans. That was the crux of how RadioShack argued that filing bankruptcy allowed them to invalidate outstanding gift cards.

downrightmike 7y ago

No, because there are intermediaries that allow non banks to use their tech, like venmo/paypal acts as a broker, and therefore has access to all the banking services they need to run their money around. And they are very careful to stay in that definition so they don't have to deal with bank regulations. I believe Vice media did a good interview where they cover this specifically.