Fintech, Crypto Firms Pursue Bank Charters Amid Favorable Administration Policies

Financial technology and crypto firms are actively pursuing state or national bank charters under the current administration, aiming to expand their business operations and gain regulatory approval. This strategic move is driven by the perception that the administration is more favorable towards their industry, providing a conducive environment for growth and legitimacy.

The push for bank charters is seen as a significant step for these firms, as it would allow them to offer a broader range of financial services and products. By becoming state or national banks, these companies can enhance their credibility and attract more customers, who may be hesitant to engage with non-bank financial institutions. Additionally, obtaining a bank charter would provide these firms with access to the Federal Reserve's payment system, enabling them to facilitate faster and more secure transactions.

Becoming a bank brings stricter regulatory oversight, but it can reduce borrowing costs and enhance legitimacy. Bank charters allow firms to lower their cost of capital by accepting deposits, yet accessing these is a major point of contention in the crypto community. Various cryptocurrency firms have, over time, resisted becoming banks over the regulatory oversight associated with the move, choosing instead to follow the industry’s ethos to further decentralize and improve access to financial services to unbanked or underbanked individuals.

Cryptocurrency firms, including Paxos, Anchorage, and Protego have become federally regulated crypto ‘banks’ after securing a federal trust charter through the U.S. Office of the Comptroller of the Currency (OCC). Kraken and Avanti have secured Special Purpose Depository Institution charts in Wyoming, making them state-regulated crypto banks.

Historically, new bank charters have been rare. Between 2010 and 2023, regulators approved an average of only five annually, compared to 144 per year from 2000 to 2007. Applications dwindled due to low interest rates, profitability concerns, and regulatory hurdles. The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve officials have signaled support for streamlining the process. However, setting up a new bank remains expensive, with costs ranging from $20 million to $50 million.

The administration's regulatory stance has been viewed as supportive of the fintech and crypto industries, which has encouraged these firms to seek banking licenses. The administration has been known to favor deregulation and innovation, which aligns with the goals of these companies. By pursuing bank charters, these firms aim to leverage the administration's policies to achieve long-term growth and establish themselves as legitimate players in the financial services industry.

The trend of fintech and crypto companies seeking bank charters is expected to continue, as more firms recognize the benefits of obtaining regulatory approval and expanding their business operations. This development is likely to reshape the financial services landscape, as traditional banks may face increased competition from these innovative and agile firms.