Allison Raley is a partner at Arnall Golden Gregory LLP and co-chair of the firm’s Emerging Technologies industry team. A former global tech general counsel and chief compliance officer for a financial services company, she brings a distinct business focused approach to her client representation. She can be reached at [email protected].
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The United States banking system relies on an intricate web of federal and state regulators to govern new institutions seeking to obtain bank charters.
The licensing and regulatory processes ensure that chartered banks meet capital requirements, maintain effective governance, and protect consumers. These processes can last several months or even years, reflecting the complexity of modern financial products and the need to uphold safety and soundness.
Many fintech companies once avoided seeking a bank charter, fearing the associated regulatory burdens. Rapid innovation in financial technology often conflicts with the lengthy process and high costs of obtaining a banking license.
As a result, many fintech startups partner with existing banks or operate in spaces that do not require a full banking license. However, during the Trump administration, changes in regulatory attitudes suggest a more welcoming climate for fintech firms interested in seeking bank charters.
The Evolution of the Chartering Process
Bank licensing in the United States occurs at both the federal and state levels. Applicants for a federal charter generally apply through the Office of the Comptroller of the Currency (OCC), while state banking departments oversee state-chartered institutions. Both types of charters impose thorough examinations of proposed business plans, capital adequacy, managerial competence, and compliance frameworks.
Fintech companies often find these requirements daunting. Providing digital-only services or novel lending models can create immediate tension with conservative compliance mandates shaped by decades of traditional banking practice.
Yet many fintech companies have realized that a charter can enhance credibility and remove the operational hurdles associated with navigating a patchwork of individual state licenses. A banking license also lets a company accept insured deposits (if it secures Federal Deposit Insurance Corporation approval) and export interest rates from a single home state nationwide — a significant advantage for consumer and small-business lenders.
Applying for a Traditional OCC Bank Charter
A traditional bank charter application with the OCC involves multiple stages. First, organizers submit a written proposal outlining their strategic plan, corporate governance structure, proposed capital levels, and the qualifications of prospective directors and management. The OCC conducts a prefiling meeting with the organizers to discuss anticipated regulatory issues and gauge the feasibility of the proposed institution.
Organizers then file a formal application, paying careful attention to key components:
- Business Plan: Fintech applicants must clearly articulate how their technology-driven strategies fit within the framework of banking operations, including details on asset composition, lending activities, and risk controls.
- Capital Requirements: Applicants must demonstrate that their initial capitalization meets or exceeds regulatory minimums and that they have a sustainable plan to support growth.
- Governance and Management: The OCC reviews the expertise and track records of directors and executive officers. Fintech companies often supplement their teams with banking veterans to reassure regulators of their institutional knowledge.
- Compliance and Risk Management: Because fintechs frequently use algorithmic tools, digital platforms, and innovative lending models, the OCC scrutinizes how they will comply with anti-money laundering (AML) rules, consumer protection statutes, and cybersecurity standards.
During the review period, the OCC may issue requests for additional information, clarifications, or modifications to the proposal. Applicants should expect at least one round of revisions before receiving preliminary approval, which grants organizers permission to proceed with capital raising and final operational setup. Once the OCC confirms that the institution has met all conditions, it grants a final charter, enabling the bank to commence operations.
This process demands a substantial commitment of time and resources. Yet fintech executives appreciate that a national charter allows them to serve customers consistently in all 50 states without juggling a myriad of state-specific licenses. With a national bank charter, fintech companies place themselves under a single regulatory authority, simplifying compliance and potentially broadening their product offerings.
State-Based Special Purpose Charters as an Alternative
For companies wary of the OCC’s rigorous process or seeking more specialized privileges, state-based special purpose charters may offer an alternative.
Several states, including Wyoming, Utah, and New York, have created or explored tailored banking frameworks for fintech entities. These special purpose charters can address innovative business models that do not require the full range of activities associated with a traditional bank.
- Wyoming’s Special Purpose Depository Institution (SPDI): Wyoming introduced the SPDI charter for companies dealing with digital assets and blockchain technologies. SPDIs operate as fully reserved institutions, meaning they hold sufficient assets to match customer deposits without engaging in traditional lending.
- Utah’s Industrial Loan Company (ILC): Utah has a longstanding tradition of granting ILC charters to a variety of financial services companies. These charters permit certain banking activities, such as lending and issuing deposits, but limit the range of permissible commercial operations.
- New York’s BitLicense: While not exactly a bank charter, the BitLicense remains a leading example of a state-level, fintech-focused regulatory framework. Issued by the New York State Department of Financial Services, it governs virtual currency activities and underscores a broader willingness among states to regulate new financial technologies in a more targeted manner.
Companies that receive these state-based special purpose charters can gain entry to parts of the financial sector without subjecting themselves to full national bank regulation.
However, they may still face limitations, including restrictions on accepting federally insured deposits and potential complications regarding interstate operations.
Depending on the business model, a special purpose charter may offer a more streamlined path than a full bank charter, but it does not necessarily confer all the privileges or geographic reach of a traditional national bank license.
OCC Fintech Charter and Trump-Era Developments
In 2016, just before the first Trump administration, the OCC proposed a special purpose national bank charter for fintech companies. Although this proposal preceded President Trump, his administration emphasized deregulation and encouraged a more permissive environment for financial innovation.
Joseph Otting, Comptroller of the Currency from 2017 to 2020, advocated for modernizing banking regulations and indicated that special purpose charters could spur competition and growth.
The OCC also established the Office of Innovation, instructing fintech applicants to engage early and frequently with regulators. By streamlining communication and clarifying expectations, the OCC attempted to reduce the uncertainty that deters some fintechs from applying for traditional charters.
These moves, combined with the Trump administration’s broader deregulatory stance, encouraged technology-focused companies to consider charter applications that might have once appeared prohibitively burdensome.
Alongside the OCC, the FDIC signaled openness to deposit insurance applications from innovative fintech enterprises. This openness gave fintech startups additional confidence as FDIC insurance enables them to accept insured deposits and removes reliance on intermediary banks.
Despite lawsuits from certain state regulators who argued that national fintech charters threatened state sovereignty, several fintech companies pushed forward. The Trump administration’s readiness to experiment with new charter structures made many entrepreneurs reconsider the traditional “rent-a-bank” model in favor of obtaining a more direct regulatory framework.
This trend was met with mixed reactions as consumer advocates worried that a lax regulatory approach could allow high-cost credit products or insufficiently tested financial models to proliferate. Nevertheless, fintech leaders found the environment to be more hospitable than under previous administrations.
Looking Ahead
Under President Trump’s current administration, regulators embrace fintech’s expanding role in the financial industry. The lingering effects of the COVID-19 pandemic continue to highlight the demand for inclusive, digital financial services, adding momentum to fintech solutions.
Agencies now confront a clear mandate: modernize the chartering framework to keep pace with rapid technological change while upholding stability and accountability throughout the banking system.
Although administrative priorities often shift, most experts agree that the drive to integrate fintech will persist. By exercising regulatory flexibility, agencies can bring emerging technologies under a coherent supervisory umbrella, encourage innovation, and safeguard consumers.
State-based special purpose charters already serve niche markets, and the OCC actively refines avenues for special purpose national banks to foster additional competition.
Fintech companies therefore receive a consistent message. The federal regime, though deliberate, welcomes responsible innovation, while state programs stand ready when a federal charter proves impractical.
The dialogue around bank charters has permanently evolved; fintech leaders now recognize that securing a charter can deliver long-term advantages that outweigh the initial compliance burden.
With sustained collaboration between regulators and innovators, the banking sector will continue to transform, driven by technology, guided by sound governance, and strengthened by a balance between entrepreneurial freedom and robust consumer protection.
