Banking on Change: Tech Startups Target Financial Services

It may not be much longer before bank branches join video-rental stores and record shops as relics of a bygone era.

Silicon Valley is pressuring banks to change their ways or risk becoming the latest industry overtaken by technology. Hundreds of startups are offering easier and cheaper ways to save, borrow, spend and invest. They are doing it by shifting the battleground to smartphone apps and websites, which function as digital offices that are accessible around the clock with minimal staffing, and by lowering fees.

Given how much customers dislike it, the financial services industry seems ripe for "disruption," as Silicon Valley likes to call industry upheaval. These financial technology, or "fintech," startups may also soon get further validation from a key banking regulator. Comptroller of the Currency Thomas Curry last week announced plans for a special national bank charter that would allow fintechs to offer their products without having to get regulatory approval state to state. Part of Curry's motivation lies in his belief that fintech can help consumers who either don't want or can't afford to establish accounts with traditional banks.

At this point, the fintech sector hasn't proven it can be a viable or trustworthy alternative to traditional banks and stock brokerages. Few of the startups have ever posted a profit, and one of the biggest, the Lending Club, is trying to recover from a breakdown that triggered the resignation of CEO Renaud Laplanche earlier this year. The Justice Department is investigating the events that led to Laplanche's abrupt departure.

"The disruption in banking is coming later than other areas because of the complexity of the regulations and the amount of trust required," Laplanche said in an interview earlier this year, while he was still CEO. "Trusting you with my savings is not like booking a trip online."

Banks, meanwhile, have demonstrated...

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