- Fintech and cryptocurrency firms have increasingly sought state or national bank charters under the current U.S. administration
- These firms aim to reduce operational costs, enhance legitimacy, and expand market opportunities
- The administration’s pro-growth stance has encouraged these firms to apply for banking licenses previously difficult to obtain
Financial technology and cryptocurrency companies are actively pursuing state or national bank charters to expand their operations in a nod to the more supportive Trump administration. Firms are seeking charters in order to reduce borrowing costs and gain greater legitimacy, with the current administration’s pro-business policies creating an environment where these firms feel more optimistic about obtaining licenses that were previously challenging to secure. This shift could lead to increased competition within the banking industry as new players enter the market.
Charting a New Course
Obtaining a bank charter offers fintech and crypto firms several advantages. It allows them to lower their cost of capital by accepting deposits, which can be a more affordable source of funding compared to other financing options. Having a banking license can also enhance a company’s credibility with customers and investors, potentially opening up new business opportunities.
Historically, the process of obtaining a bank charter has been rigorous and time-consuming, with few approvals granted in the years following the financial crisis. Between 2010 and 2023, an average of only five new bank charter applications were approved annually by regulators, compared with 144 per year before the 2008 financial crisis. However, the current administration’s focus on deregulation and pro-growth policies has led to increased optimism among fintech and crypto firms.
In 2020, Kraken became the first crypto entity to be awarded a banking charter when it was granted one by the Wyoming Banking Board.
Potential Impact on the Banking Industry
The entry of fintech and crypto companies into the traditional banking sector could significantly alter the competitive landscape, introducing innovative financial products and services and challenging established banks to adapt and innovate. However, they will also need to navigate complex regulatory requirements, including compliance with anti-money laundering laws and capital adequacy standards, as well as scrutiny from federal and state regulators to ensure financial stability and consumer protection.
The success of these firms in obtaining bank charters and integrating into the traditional financial system will depend on their ability to meet these regulatory standards while delivering value to consumers.
