The Charter Boom: Fintechs Are Becoming Banks, Fast
The OCC has conditionally approved national charters for a string of financial technology companies this year while targeting 120-day decisions, and industrial loan charters are drawing interest again.
For most of the past decade, the answer a financial technology company received when it asked about a bank charter was a polite version of no. That has changed with unusual speed.
The Office of the Comptroller of the Currency has granted conditional national bank charter approvals to a series of technology-driven firms this year — including NuBank in January, VALT Bank in March, Mercury Bank in April and Augustus National Bank in May — and the comptroller has publicly targeted a 120-day turnaround on applications, a timeline the agency has largely met.
The pipeline keeps filling. An AI-driven consumer lender applied in late March to establish its own national bank.
Why companies want out of the partner model
Most fintechs offering deposits or loans today do so through a partner bank, which holds the charter, owns the regulatory relationship and takes a share of the economics.
That structure has three costs. Margins are shared. The partner's risk appetite constrains the product. And when supervisors take issue with a program, the enforcement lands on the partner bank, which then restricts the fintech — a chain of control the fintech cannot influence.
A charter removes all three, and replaces them with direct supervision, capital requirements and the obligations of a regulated institution.
The industrial loan revival
Alongside national charters, the industrial loan company charter is drawing renewed interest. It permits FDIC-insured deposit taking and lending without the full bank-holding-company framework that applies to national banks, which makes it attractive to commercial parents that do not want their entire corporate structure supervised as a bank.
That is precisely why the charter type has been contested for two decades. The current environment is the most permissive it has been for these applications in a long time.
What could go wrong
De novo banks fail at higher rates than established ones, and banks built around a single product concentrated in one customer segment fail more often than diversified ones.
The current cohort is entering a market where credit is beginning to deteriorate at the margins — rising card and auto delinquencies, record private credit default rates, continuing commercial real estate stress. A first credit cycle is a difficult thing for any new institution, and most of these will be experiencing theirs with a business model that has never been tested by one.
