2025 has emerged as the year of the bank charter in the US, marked by a surge in licensing activity from fintechs and other non-traditional applicants. Based on our analysis of reporting from the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Federal Reserve Board and state banking supervisors, 20 such filings have been submitted this year through October 3rd, representing an all-time high. And this may be just the beginning, with more applications expected to follow.
It presents a striking paradox: Why would fintechs — known for their nimble, innovative go-to-market strategies — choose to embrace the heightened regulatory scrutiny that comes with a bank charter?
The reasons are threefold:
- Leading fintechs are reaching new levels of scale and maturity, allowing them to reap greater strategic and financial benefits from a charter to offset the accompanying investments
- New leaders at regulatory agencies have shifted priorities, leading to greater receptivity to bank charters from nontraditional applicants. This creates a window to act with urgency
- Some fintechs continue to be concerned about the long-term risks that come with relying on a sponsor bank to access banking and payments rails, and the corresponding lack of control over their own future
But the decision to pursue a charter is not one-size-fits-all. It is a significant undertaking that requires a thoughtful approach, along with a significant investment of time, effort, and capital.
There are many types of charters to consider in addition to the decision of whether to apply de novo or buy an existing bank. Many fintechs should forgo a charter altogether and continue operating through banking-as-a-service (BaaS) arrangements with sponsor banks since it’s a proven model that comes with less compliance overhead. Nevertheless, for those fintechs that combine a balance sheet-centric strategy with scale and maturity, a charter can unlock substantial strategic and financial benefits. The optimal path depends on a fintech’s strategy, maturity, financials, and likelihood of approval.
Fintech charters reshape strategy for banks and regulators
The fintech charter trend will have implications across the broader financial services ecosystem, with clear calls to action for fintechs, incumbents, and regulators. We expect a few leading fintechs that obtain full-service charters to follow SoFi’s lead in reaching the ranks of the top 50 banks by assets. The industry impact will be more muted for smaller fintechs or those pursuing limited-purpose banks, though these charters will still be strategically important for this set of players. On the whole, the charter wave may further boost fintechs’ momentum in taking share from incumbents. This shift presents both opportunities and challenges, and each group will need to respond strategically.
Fintechs should act now to conduct a strategic assessment of bank charter options given the narrow window to pursue charters under the current administration, as future regulatory environments may be less favorable.
Incumbent banks should respond to rising competition from fintechs by embracing a customer-centric, digital-first approach and a comprehensive fintech M&A and partnership strategy.
Policymakers should consider whether to update bank charter policy, balancing innovation and competition with safety and soundness by ensuring clear and flexible regulatory frameworks that reflect the evolving landscape.
Bank charters can drive growth but need careful evaluation of trade-offs
Before deciding if a charter is the right approach, a fintech should be conducting an in-depth evaluation of its options. Trade-offs related to a charter can be divided between top-line considerations and cost implications.
Top-line considerations most commonly relate to the impact of a bank charter on a fintech’s long-term growth, primarily as a result of increased control over policies, procedures, and products. Cost considerations include savings from deposit funding and eliminating sponsor bank fees and increased costs from bank overhead and the paid-in capital to fund the bank. Fintechs with balance sheet-centric strategies are mostly likely to realize top-line and cost advantages from a charter. Additionally, a fintech’s scale and maturity will also affect their assessment of the trade-offs, as the benefits generally become more salient with scale while the drawbacks become less onerous. For instance, a fintech that has gone through the IPO process will have less of gap to address in improving governance and controls as part of a bank charter effort.
