Blog Series: Finally, Fintech Investment in Iowa
Posted on 08/19/2022 at 10:35 AM by Charles Telk
Fintech, short for Financial Technology, is a relatively new industry which uses technological developments to provide financial services. Despite its age and recent issues in the global economy, Fintech has grown exponentially around the world. Global Fintech funding more than doubled in 2021 to over $130 billion; up from around $49 billion in 2020.
Banks have increasingly adopted the Fintech services in order to stay competitive. Some banks have wanted to take a more active role in Fintech development.
Under the new Chapter 524, Iowa banks may now invest in Fintech companies, subject to certain restrictions.
The recent change, effective July 1, 2022, added subsection 524.901(10), which expressly authorizes Iowa banks to invest a maximum of 5% of aggregate capital in “any corporation or other entity which develops or utilizes new or innovative technologies,” which are useful in providing banking and financial services. This includes:
- Data processing services.
- Activities that support financial services, including but not limited to lending, funds transfer, payment processing, fiduciary activities, trading activities, and deposit taking.
- Internet-related services, including but not limited to web services and electronic bill payments, mobile applications, system and software development and maintenance, and security monitoring.
- Activities related to the business of banking.
Superintendent approval is required before making such an investment. A bank’s investments in Fintech companies cannot exceed 5% of the bank’s aggregate capital, regardless of the number of Fintech companies invested in.
These changes clear an obstacle for Iowa banks, and allow them to take advantage of a large and fast-growing industry. As the Fintech industry continues to develop, Iowa banks may now take part in shaping it. There are still other hurdles for Iowa banks to consider before deciding to invest in a Fintech. The FDIC’s limitations in 12 C.F.R. Part 362 on permissible activities for banks still apply. Iowa banks interested in moving into the Fintech marketplace should be prepared to seek regulatory approval before diving into the Fintech market.
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