Crypto companies and financial technology upstarts have long cast themselves as challengers to traditional banks. But now, many are seeking licenses to enter the very industry they once sought to upend: That is, they want to become banks.
Dozens of financial firms — established industry veterans and nascent start-ups — have applied for banking charters. The list includes the payments behemoth PayPal; the “buy now, pay later” pioneer Affirm; all of Detroit’s Big Three automakers; World Liberty Financial, which is linked to the Trump family; and a wave of other cryptocurrency brokers and merchants.
The firms are taking advantage of Trump administration policies aimed at creating more banks, after a lengthy period during which the number of new entrants stalled.
The banking charters would allow the firms to have more control over the loans they initiate and the assets they can hold. Without a charter, some of the firms have had to rely on third parties to extend credit, which complicates their decision-making and reduces profits.
These charters come with other major perks — most notably, for national charters, a federal pre-emption that overrides many state-specific consumer protection laws like interest-rate caps.
Banking remains one of America’s most heavily regulated industries because of the power such institutions hold over consumers, businesses and the nation’s economy.
But the Trump administration has made it clear that it believes regulations went too far, creating excessive red tape. President Trump appointed regulators who have significantly cut bank supervision and have rewritten rules to reduce the amount of capital banks need to retain to protect against losses.
The relaxed regulations are another factor making it more attractive for financial firms to now seek bank charters.
“The regulators under Trump are signaling they are open for business, and that’s really a sea change from the Biden era,” said Michele Alt, a partner at Klaros Group, a financial consultancy that helps companies navigate the licensing process.
The shift comes after a 15-year stretch in which the average number of new banks created annually plunged to its lowest level since the 1960s.
The day after Mr. Trump began his second term, the leader of the Federal Deposit Insurance Corporation encouraged “new entrants” into the banking industry. Companies heeded the call: The agency this year granted preliminary deposit-insurance approval to industrial banks run by Ford Motor, General Motors and Stellantis. Affirm and PayPal have applications under review.
Roughly a quarter of the nation’s 4,500 banks are federally chartered; the rest are licensed and primarily supervised by individual states.
After the risks exposed in the 2008 financial crisis led to the Great Recession, lawmakers and regulators responded with a sweeping set of systemic reforms and safeguards. Those are now being pared back.
Jonathan Gould, the comptroller of the currency, broadcast the new tone in a December speech at an event hosted by the Blockchain Association, a crypto trade group.
“New charters ensure a diverse banking sector,” he said. “We believe that innovation, competition and fair access should always triumph over regulatory stagnation.”
Days later, his agency granted conditional approval of national bank charters for five crypto ventures, including ones from a stablecoin issuer, Ripple Labs, and from Fidelity Investments, which sought a charter for its Fidelity Digital Assets subsidiary.
Many of the firms seeking bank charters won’t necessarily look like Main Street banks, with retail branches, savings accounts and A.T.M.s.
The charters that the Office of the Comptroller of the Currency approved late last year allow the operators to create “national trust banks,” a specialized license that lets companies act as custodians for customers’ assets, such as cryptocurrency, but prohibits them from accepting traditional cash deposits. National trust banks are not required to meet the same stringent capital requirements as full-service banks, and they are not typically insured or regulated by the F.D.I.C.
That means that if they fail, customers risk being completely wiped out.
Many of the industry’s incumbents are unhappy with the expansion of charters. The American Bankers Association warned that the new charters “create opportunities for regulatory arbitrage” — the tactic of exploiting gaps in regulators’ varied rules — and the Independent Community Bankers of America, which represents smaller banks, said the O.C.C. had stretched the national trust bank charter “beyond its statutory and historical purpose” in a way that “endangers consumers.”
A coalition of more than 100 consumer groups also voiced concerns in a letter this month opposing the applications of two companies in particular — Enova and OppFi — that specialize in high-cost, short-term loans. “These would be the first national banks dedicated to directly making predatory loans,” the consumer groups wrote.
OppFi says its business model serves people “who are forgotten by traditional lenders.” Obtaining a national bank charter “will allow us to expand that mission by reaching more underserved consumers in more states, at lower rates, with better outcomes,” said Todd Schwartz, the company’s chief executive.
Both Enova and OppFi are seeking to obtain charters by buying nationally chartered banks. Enova declined to provide a comment.
Businesses that lack a charter are typically barred from making loans, holding assets or processing payments directly, which has spawned an entire ecosystem of intermediaries providing workarounds. Many fintechs, including online lenders and payment apps, rely on partner banks to legally hold and handle their customers’ funds.
That arrangement is often invisible to clients — unless it goes catastrophically wrong.
In 2024, a software company called Synapse Financial Technologies imploded. Synapse operated as a bridge between fintechs and a network of F.D.I.C.-insured banks that were supposed to hold money for the fintechs’ customers. But Synapse kept shoddy records, and when disputes with several of its banking partners threw its own finances into disarray, the company fell apart. More than 100,000 people found their accounts frozen, and at least $60 million in customer funds disappeared.
Obtaining a bank charter lets financial companies cut through such tangles and directly handle their customers’ accounts. And eliminating the middleman can, of course, increase their profits.
“A lot of lenders — mostly small-business lenders and consumer lenders — want to pursue a bank charter as a pathway to a cheaper cost of funds,” said Jasper Sneff Nanni, a managing principal at FS Vector, a consulting firm.
Upstart Holdings, in San Mateo, Calif., has for more than a decade been using its own algorithms to evaluate consumers’ creditworthiness. Last year, it underwrote 1.5 million home equity, auto and personal loans, totaling $11 billion. But Upstart cannot issue its loans directly. For that, it relies on a network of more than 100 banks and credit unions, which then often immediately resell those loans to other investors or to Upstart itself.
In March, Upstart announced that it would seek to become a national bank holding company, subject to Federal Reserve supervision. That, paired with a national charter, would give Upstart the ability to offer similar loan terms and pricing across all 50 states, potentially filling in gaps in its current geographic reach.
Annie Delgado, Upstart’s chief risk officer and the intended chief executive of Upstart Bank, cited expanded approvals and lower costs as “two primary benefits that our customers will experience.”
The charter would also, executives hope, give Upstart a seat at the table as federal agencies write the rules on how financial companies can use artificial intelligence, a core part of Upstart’s heavily automated lending platform.
“It was just a natural next step for us,” said Paul Gu, the company’s chief executive.
Stacy Cowley is a Times business reporter who writes about a broad array of topics related to consumer finance, including student debt, the banking industry and small business.
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