Fintech and Crypto Firms Pursue Banking Licenses

Fintech and crypto firms are actively seeking state and national banking licenses under President Donald Trump’s administration to gain previously slow-to-materialize regulatory approval.

According to a Reuters report, industry executives believe that firms pursuing credibility and market expansion find a favorable landscape under the current administration, which has prompted regulators to shift from their cautious approach to crypto.

Increased Interest in Banking Licenses

New banking entrants enhance competition within the industry and cater to niche market segments. Analysts and industry insiders suggest that banks launched by fintech and crypto firms could serve previously underserved customer bases.

Additionally, legal experts involved in banking charter applications have reported a growing interest. Alexandra Steinberg Barrage, a partner at Troutman Pepper Locke, mentioned that multiple applications are underway, although firms are cautiously optimistic as regulatory leadership takes shape.

Reports from two additional sources regarding similar applications indicate a notable increase in discussions and preparatory activities for bank charters, though the extent of actual follow-through remains uncertain.

Securing a banking license entails additional regulatory scrutiny but offers strategic advantages. A banking license can lower borrowing costs, enhance capital access, and boost legitimacy in the eyes of customers.

Carleton Goss, a partner at Hunton Andrews Kurth, stressed that the ability to reduce borrowing costs through deposit access is a significant advantage. His firm is currently helping with three such applications.

Improving Regulatory Environment

Regulatory officials appointed by Trump’s administration have emphasized innovation in financial technology.

Federal Deposit Insurance Corporation (FDIC) acting chair Travis Hill recently mentioned that the agency aims to support more bank charter applications to maintain a steady influx of new entrants.

Crypto is gaining a more favorable standing in the US; Hill condemned efforts to debank sector firms as “unacceptable.”

The FDIC plans to revise its guidelines to permit banks to interact with crypto-related activities, indicating a welcoming shift.

Federal Reserve Chairman Jerome Powell has also contributed positively to the regulatory landscape, stating that the central bank has no intentions of preventing banks from serving legal crypto customers.

Policies enacted during Trump’s administration are generally expected to promote business growth and facilitate charter approvals. Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence, noted that past regulatory trends under Trump saw an increase in charter applications.

Competitive Implications

The number of new bank charters in the US dropped significantly after the 2008 financial crisis, with only four approvals in 2023, as per S&P Global.

From 2010 to 2023, regulators approved an average of merely five new charters annually, in stark contrast to the 144 approvals per year from 2000 to 2007.

Historically, applications have endured lengthy review periods, with some being withdrawn due to regulatory challenges and interest rate conditions that made profitability tough. Online financial platforms acknowledge that the growing regulatory scrutiny compels a proactive strategy.

Goss stated that it is prudent for these platforms to stay ahead of the curve, adding that obtaining a bank charter enhances credibility and decreases operational costs.