Fintech, Crypto Firms Pursue Banking Licenses Amid Regulatory Shift

Fintech and crypto firms are actively pursuing state and national banking licenses under the current administration to gain regulatory approval that was previously slow to materialize. Industry executives indicate that firms seeking credibility and market expansion see a favorable landscape under the administration, which has forced regulators to transition from their cautious stance toward crypto.

New banking entrants increase industry competition and cater to niche market segments. Analysts and industry participants indicate that financial institutions launched by fintech and crypto firms could address underserved customer bases. Legal professionals working on banking charter applications confirm a rising interest. Alexandra Steinberg Barrage, a partner at a law firm, noted that multiple applications are in progress, though firms remain cautiously optimistic as regulatory leadership settles. Two additional sources working on similar applications observed a significant uptick in discussions and preparatory work for bank charters. However, the extent of follow-through remains uncertain.

Becoming a licensed bank presents additional regulatory scrutiny but offers strategic benefits. A banking license lowers borrowing costs, improves capital access, and enhances legitimacy in customers’ eyes. Carleton Goss, a partner at a law firm, emphasized the ability to reduce borrowing costs by drawing on deposits as a key advantage. His firm is currently assisting with three such applications.

Regulatory leaders installed by the administration have highlighted financial technology innovation. The Federal Deposit Insurance Corporation acting chair recently stated that the agency aims to encourage more bank charter applications to maintain a steady pipeline of new entrants. Crypto is specifically finding more favorable ground in the US. The acting chair acknowledged alleged efforts to debank this sector firms and called them “unacceptable.” The Federal Deposit Insurance Corporation will also revise its guidelines to allow banks to interact with crypto-related activities, suggesting an opening channel. Federal Reserve Chairman contributed to the improving regulatory landscape by saying that the central bank regulator has no intention of preventing banks from serving crypto to perfectly legal customers. The administration policies are generally expected to favor business growth and facilitate charter approvals.

The number of new bank charters approved in the US plummeted after the 2008 financial crisis, with just four approvals recorded in 2023. Between 2010 and 2023, regulators approved an average of only five new charters annually, compared to 144 per year from 2000 to 2007. Applications have historically faced prolonged review periods, with some withdrawn due to regulatory challenges and interest rate conditions that reduced profitability. Online financial platforms recognize that increasing regulatory scrutiny necessitates a proactive approach. It makes sense for these platforms to get ahead of the curve, adding that securing a bank charter enhances credibility and reduces operational costs.