A recent LEND360 webinar, entitled “Becoming a Bank: Insider Perspectives for Fintechs,” brought together a powerhouse panel of regulatory, legal, and advisory experts to discuss what fintechs need to know before pursuing a bank charter. With the OCC receiving as many de novo charter applications in 2025 as the previous four years combined, and with federal banking regulators signaling unprecedented openness to non-traditional applicants, this topic couldn’t be more timely.
Key insights from the discussion are below:
What’s driving the notable uptick in charter applications and approvals involving fintechs?
- There is a real substantive change with federal banking regulators regarding their willingness to consider and ultimately approve non-traditional bank applications. That communicated willingness is also driving more traditional banking activity because there has been a perception that regulators were slow or unwilling to consider even normal applications.
- There has also been a dramatic decline in the time period for approval. The federal banking regulators have said that they want to approve applications in 120 days, and they are getting pretty close to that timeframe even on non-traditional applications.
- Part of the pendulum swing that we are seeing was informed by a lack of receptivity in the prior administration. It was very hard for any entity other than a traditional community bank to pierce the federal bank regulatory perimeter, but that has changed. There is now an openness to innovative charters and innovative business approaches, not just traditional brick and mortar banking. Many entities see a real window of opportunity to get things done right now.
For many in the LEND360 audience, preemption is one of the biggest reasons to consider a bank charter. Can you walk us through what that means?
- At its core, the National Bank Act going all the way back to 1864 allows national banks to charge the interest rate allowed by the laws of the state where the bank is located, under a “most favored lender” concept. In 1978, the Supreme Court affirmed that national banks can export those rates regardless of state law restrictions in other states. The Depository Institutions Deregulation and Monetary Control Act of 1980 then gave state chartered banks similar rate export authority, and in 1996 the Barnett Bank decision allowed for broad national bank preemption when a federal banking power is prevented or significantly interfered with by a state law, which was later codified in Dodd-Frank.
- This doesn’t mean that national banks can ignore any state law, because they still have to show that a state law prevents or significantly interferes with a federal banking power. But interest rate authority is pretty easily preempted across the board.
Beyond interest rate preemption, what are the other strategic reasons a fintech might want to become a bank?
- One is the ability to accept FDIC-insured deposits, which historically have proven to be stable and lower cost. This is a good hedge when funding dries up because of tumult in the capital and Asset-Backed Securities (ABS) markets.
- In addition, the bank lenders you depend on might change their risk parameters or debank you, and a charter allows you to control your own destiny.
- A charter also offers access to payment networks and the safety of the Fed’s discount window as a lender of last resort.
- There is also a partnership dynamic. A lot of people in the LEND360 community have partnerships with banks because banks have unique powers to make loans, accept deposits, and join payment networks. While those partnerships can be very advantageous, they also present a potentially existential risk to the business if your partner decides to exit.
- Lastly, there is an economic advantage: you have to slice a lot of pie when you have partners, but if you can be your own bank there’s more pie to go around.
What does the process look like to go from a fintech to a bank and what is a realistic timeline?
- There are three main phases. The pre-filing phase starts with true strategy analysis: does this make sense economically and do you understand what it takes to operate as a regulated banking entity? If yes, you begin engaging with regulators. In the current environment, the OCC process may involve a series of iterative meetings, while the FDIC tends to have a more formal pre-filing meeting where you go through all aspects of your business plan.
- The post-filing phase is where the regulator reviews your application. There will likely be a series of information requests and a field investigation. This phase culminates in a preliminary conditional approval that sets out the requirements for actually opening your bank.
- Then there’s the implementation phase, which varies based on your current capabilities. The conditional approval sets a deadline to capitalize and open the bank—generally a 12- to 18-month window. When you’re ready, you request a pre-opening exam and you should be completely ready to open when you invite the regulator back in.
- Most traditional banks can go from the initial idea meeting to an open bank in 12 months, but it’s important to note that conditional approval isn’t the finish line. Historically, the biggest reason conditionally approved banks never opened was that they couldn’t raise the required capital. The second biggest pitfall is not being able to build out a qualified management team or board. The third is not being able to build out adequate compliance and risk management systems.
