Crypto companies and financial technology newcomers have long presented themselves as challengers to traditional banks. But today, many are looking to get a license to enter the very industry they once sought to disrupt: that is, they want to become banks.
Dozens of financial companies – industry veterans and nascent start-ups – have applied for a banking charter. The list includes payments giant PayPal; “buy now, pay later” pioneer Affirm; all of Detroit’s Big Three automakers; World Liberty Financial, which is linked to the Trump family; and a wave of other cryptocurrency brokers and dealers.
These companies are taking advantage of the Trump administration’s policies to create more banks, after a long period in which the number of new entrants stagnated.
Bank charters would allow companies to have more control over the loans they take out and the assets they can hold. Without a charter, some companies have had to rely on third parties to grant credit, which complicates their decision-making and reduces their profits.
These charters have other major advantages, including, for state charters, federal preemption that overrides many state-specific consumer protection laws, such as interest rate caps.
The banking industry remains one of the most regulated industries in the United States because of the power these institutions wield over consumers, businesses, and the national economy.
But the Trump administration has made clear that it believes the regulations go too far, creating excessive bureaucracy. President Trump appointed regulators who dramatically reduced banking supervision and rewrote the rules to reduce the amount of capital banks must maintain to protect against losses.
Relaxed regulations are another factor that makes it more attractive for financial companies to seek a banking charter.
“Regulators under Trump are signaling that they are open for business, and that’s really a sea change from the Biden era,” said Michele Alt, a partner at Klaros Group, a financial advisory firm that helps companies navigate the licensing process.
The change comes after a 15-year period in which the average number of new banks created each year plunged to its lowest level since the 1960s.
The day after Mr. Trump began his second term, the head of the Federal Deposit Insurance Corporation encouraged “new entrants” into the banking industry. Businesses have answered the call: The agency this year granted preliminary approval for deposit insurance to industrial banks run by Ford Motor, General Motors and Stellantis. Affirm and PayPal have applications under review.
About a quarter of the nation’s 4,500 banks are federally chartered; the rest are licensed and primarily overseen by individual states.
After risks exposed during the 2008 financial crisis led to the Great Recession, lawmakers and regulators responded with a broad set of reforms and systemic safeguards. These are now reduced.
Jonathan Gould, the comptroller of the currency, spread the new tone in a December speech at an event hosted by the Blockchain Association, a crypto trade group.
“The new charters ensure a diversified banking sector,” he said. “We believe that innovation, competition and fair access should always triumph over regulatory stagnation. »
Days later, his agency granted conditional approval of national bank charters for five crypto companies, including those of a stablecoin issuer, Ripple Labs, and Fidelity Investments, which was seeking a charter for its subsidiary Fidelity Digital Assets.
Most companies seeking bank charters won’t necessarily look like major banks, with retail branches, savings accounts and ATMs.
Charters approved by the Office of the Comptroller of the Currency late last year allow operators to create “national trust banks,” a specialized license that allows companies to act as custodians of customer assets, such as cryptocurrencies, but prohibits them from accepting traditional cash deposits. National trust banks are not required to meet the same strict capital requirements as full-service banks, and they are generally not insured or regulated by the FDIC.
This means that if they fail, customers risk being completely wiped out.
Many industry incumbents are unhappy with the expansion of charters. The American Bankers Association has warned that the new charters “create opportunities for regulatory arbitrage” — the tactic of exploiting loopholes in regulators’ various rules — and the Independent Community Bankers of America, which represents small banks, said the OCC has expanded the national trust bank charter “beyond its statutory and historical purpose” in a way that “endangers consumers.”
A coalition of more than 100 consumer groups also expressed concerns in a letter released this month, opposing the applications of two companies in particular – Enova and OppFi – which specialize in short-term, high-cost loans.
“These would be the first national banks dedicated to directly making predatory loans,” the consumer groups wrote.
OppFi says its business model serves people “who are overlooked by traditional lenders.” Obtaining a national bank charter “will allow us to expand that mission by reaching more underserved consumers in more states, at lower rates and with better results,” said Todd Schwartz, the company’s chief executive officer.
Both Enova and OppFi are seeking charters by purchasing nationally chartered banks. Enova declined to comment.
Companies without charters are generally barred from making loans, holding assets or directly processing payments, which has given rise to an entire ecosystem of intermediaries offering workarounds. Many fintechs, including online lenders and payment apps, rely on partner banks to legally hold and manage their customers’ funds.
This arrangement is often invisible to clients – unless it goes catastrophically wrong.
In 2024, a software company called Synapse Financial Technologies has imploded. Synapse served as a bridge between fintechs and a network of FDIC-insured banks that were supposed to hold the money of fintech customers. But Synapse kept shoddy records, and when disputes with several of its banking partners threw its own finances into disarray, the company collapsed. More than 100,000 people had their accounts frozen and at least $60 million in customer funds disappeared.
Obtaining a banking charter allows financial companies to escape these problems and directly manage their customers’ accounts. And cutting out the middlemen can of course increase their profits.
“Many lenders — primarily small business lenders and consumer lenders — want to go with a bank charter as a way to reduce the cost of funds,” said Jasper Sneff Nanni, managing director of FS Vector, a consultancy.
Upstart Holdings, in San Mateo, Calif., has used its own algorithms to assess consumer creditworthiness for more than a decade. Last year, it underwrote 1.5 million home, auto and personal loans, totaling $11 billion. But Upstart cannot directly issue its loans. To do this, it relies on a network of more than 100 banks and credit unions, which then immediately resell these loans to other investors or to Upstart itself.
In March, Upstart announced that it would seek to become a national bank holding company, subject to supervision by the Federal Reserve. This, coupled with a national charter, would give Upstart the ability to offer similar loan terms and pricing across all 50 states, potentially filling gaps in its current geographic reach.
Annie Delgado, Upstart’s chief risk officer and future CEO of Upstart Bank, cited expanded approvals and reduced costs as “two key benefits our customers will benefit from.”
The charter would also, executives hope, give Upstart a seat at the table as federal agencies write the rules for how financial companies can use artificial intelligence, a critical part of Upstart’s highly automated lending platform.
“It was just a natural step for us,” said Paul Gu, the company’s chief executive.
