After years of regulatory paralysis, the floodgates have opened for new bank charters from fintech companies. Zero fintech-related banks were chartered during the Biden administration’s four years. Now, barely a year into the Trump administration, we’re seeing preliminary approvals announced almost weekly, with over 30 applications in various stages of review.
But preliminary approval is just the starting line. As the industry rushes to embrace this new regulatory moment, the real question isn’t who’s getting approved, it’s what happens next, and how this wave of new banks will fundamentally reshape American banking. I spoke with several banking experts to explore the answer to this question.
From Zero to Sixty: Understanding the Shift
Michele Alt, partner at Klaros Group, describes the previous environment in stark terms: “During the Biden administration, the regulators applied effectively a ‘zero tolerance for risk approach’ to new bank formation. Which, if you have no appetite for risk, no one’s going to get through.”
That zero-risk tolerance created its own dangers. “The risk that the Biden administration’s no risk tolerance policy created was the risk that innovation and competition were happening outside their purview.”
By refusing to charter new banks, regulators didn’t eliminate risk, they just pushed it outside the regulated banking system, where it became harder to monitor and manage.
Mike Nonaka, a partner at Covington & Burling, sees a more nuanced dynamic. “I think a lot of fintech companies felt that pressure from scrutiny on bank-as-a-service models. And I think one of the responses to that pressure is to have more of a direct relationship with regulators.”
The surge in charter applications isn’t just about a friendlier regulatory climate, it’s also about fintech companies responding to years of intense scrutiny on sponsor bank relationships by eliminating the middleman.
The Real Work Begins After Approval
If you’ve been following the headlines, you might think that securing a preliminary conditional approval means a fintech bank is weeks away from opening for business. That’s far from reality.
David Portilla, a partner at Davis Polk, offers a helpful analogy: “If you think of chartering a bank like building a house, getting your preliminary conditional approval is like getting all of your permits that let you start construction. Then, much later, you have to get your certificate of occupancy, which means you can move in.”
Between preliminary approval and actually opening lies the “in organization” phase, typically 18 months of intense work building out infrastructure, policies, procedures, and management teams. “The preliminary conditional approval gets you to that point where then you can actually build out the bank,” explains Nonaka. “It’s a true milestone in the process.”
But it’s not a guarantee. Portilla is clear: “I would not assume that every single institution that receives preliminary conditional approval will receive final approval.”
A Three-Stage Process
Alt breaks down regulatory scrutiny into three phases:
- Initial application review examining management, business plans, and financials.
- The in-organization phase when applicants “must satisfy the regulators pre-opening exam and all of the conditions that were imposed as part of the preliminary approval.” That’s a high bar.
- Ongoing supervision once the bank opens.
“When people say, what about the risks of all these quick approvals or whatever, it’s like, oh, they’re just getting started,” Alt notes. The preliminary approval is the beginning of regulatory scrutiny, not the end.
Choosing the Right Charter
One of the most strategic decisions facing fintech companies is which type of charter to pursue. The choice involves complex tradeoffs between capabilities, regulatory burden, and strategic positioning.
“The way I’ve approached this is you have to think of the products and services that you would like to use the bank to offer,” explains Portilla. “Then you have to look at the attendant regulatory standards that attach to each different charter type. And then you have to decide whether the particular matrix of products and services you want to offer are worth to the organization taking on the regulatory requirements attached to the charter that allows you to offer those products and services.”
The crypto companies, for instance, have gravitated toward national trust company charters. These offer two key advantages: they don’t require FDIC insurance, which means no separate FDIC application, and they don’t trigger bank holding company status for the parent organization. This matters immensely for crypto exchanges that don’t want their trading operations subject to Federal Reserve supervision.
Industrial loan companies (ILCs) offer a similar benefit, avoiding bank holding company status, but with limitations on the products and services they can offer. It’s a strategic calculation each company must make based on their specific business model and growth plans.
Now, I reached out to several fintechs who were at different stages in the bank charter application process, but no one was willing to speak with me on the record. However, at the recent Fintech Xchange event in Salt Lake City, there was a session on bank charters that featured, among others, Jon Auxier, Mercury’s Chief Banking Officer who will serve as CEO and President of Mercury Bank, pending approval.
Mercury provides a concrete example of a fintech pursuing the full service bank charter path. Auxier demonstrates the point made by Portilla, “All the products that we have in our business today and that we are actively building on our roadmap fit within the ecosystem of the national bank charter.” With over 300,000 customer relationships announced in their recent annual letter, Mercury views itself as “a software company that’s merged that software into traditional banking products.”
Portilla sees a clear pattern emerging: “I think you’re going to see a second wave of charter applicants that fall more into the full service bank category…those companies just make decisions and engage in business planning in a different way.” These tend to be larger, more established companies like Mercury, as well as some international players looking to expand into the U.S. market.
The Preparedness Question
How ready are these companies for the reality of operating a regulated bank?
Amias Gerety, a partner at QED Investors who advises portfolio companies on charter decisions and co-authored a paper on bank charters last year, offers perhaps the most vivid framing of what becoming a bank really means: “It is like adding a board member who is very powerful and represents the public, not your shareholders.”
That power dynamic creates fundamental operational changes that many fintechs underestimate. “I think people will struggle more than they currently anticipate with the reality of being a bank,” Gerety warns. “The current bank regulators are eager to have people come in. And they are underselling the degree to which their examiners have not changed. The policies that govern safety and soundness have not materially changed.”
The difference between partnering with a bank and being one is categorical, not incremental. “Many companies think of themselves as having the compliance and the culture that they need in order to be a regulated institution,” Gerety explains. “I think that is a pretty significant category error…It is a categorically different experience to deal with someone who is supervising you versus someone who is trying to track compliance.”
Mercury’s Auxier echoes this reality. “There’s this kind of mindset that exists in some pockets of fintech where they tend to think of things like innovation and growth as mutually exclusive with safeguarding customer assets and governance. I fundamentally do not believe that those are mutually exclusive.” Mercury has spent years building out compliance and risk functions. “It takes not just a handful of people in the organization, but the entire organization being committed to this transformation.”
There’s also a warning about misreading the current environment. “I think there’s the temptation to look at this as like really kind of some sort of a lower bar type of environment where the standards are not quite as high,” Auxier cautions. “Regulatory environments do kind of swing on a pendulum…we’re wanting to build this in a way that will withstand those swings.”
Impact on the System
Looking beyond individual applications, what will this wave of new banks mean for American banking?
“I think it’s a positive impact,” says Nonaka. “I think that there’s a virtuous cycle in some ways of new technology entering the banking system.” Regulators can examine these innovations, develop supervisory frameworks, and expand their institutional knowledge of emerging technologies.
There’s also a basic health issue for the banking system itself. Jonah Crane, the Head of Global Regulatory and Policy Development at Stripe, who was also on the panel at Fintech Xchange, pointed out, “We’re losing lots of small banks every year via consolidation. And so if we’re not replenishing that, then at some point we’re losing the vitality of our system.” The historical anomaly of the post-crisis years, where we essentially stopped chartering new banks, was unsustainable.
But bringing innovation inside the regulated system will require evolution on both sides. “The expectation is that your super innovative institution is going to do every single thing the exact way that a community bank has done it for the last 40 years. That’s not a realistic expectation,” Crane argues. Regulators need to “move continually away from a bit more of a checkbox approach” and instead focus on whether companies are “managing risk in a way that meets the regulatory objectives.” It’s about outcomes, not a lower bar, but enabling multiple approaches to meeting the same (high) bar.
Portilla frames it in terms of long-term evolution. “Financial regulatory policy is an exercise in continually evaluating the balance between growth and innovation on the one hand, and financial stability on the other.” Innovation benefits consumers, drives competition, and pushes other firms to do more. “That to me seems incontrovertibly good for the system.”
For Alt, it comes down to acknowledging reality. “The regulators are taking a more reasonable approach or more reasonable view of risk in new bank entrance. They’re also acknowledging the realities that these guys are here. These guys being the fintechs and the crypto providers, they’re here, they’re in our financial system. We can stick our head in the sand. But the risks of their participation in the financial system is not avoided by avoiding regulating them.”
This might be the most important insight: bringing fintech and crypto companies into the regulated banking system doesn’t increase risk, it just makes existing risk more visible and manageable.
Looking Ahead
The next 18 months will be critical. We’ll see which of these preliminary approvals convert to operating banks, and which fall by the wayside.
Gerety offers clear guidance on who should and shouldn’t pursue this path: “If your destiny is to be a full service financial institution that wants to be independent. Absolutely. Great. But if your destiny is to be a monoline financial institution that is going to sell to someone else, really?” The economics matter too. “I think there is good payback from this investment. But it’s probably a four to five year payback… If you’re growing 5x a year with one type of loan, don’t become a bank. Not today.”
His bottom line is both supportive and cautionary: “My main message to people is this is going to be harder than the rhetoric makes it appear. It is going to be a larger change from your current operating model than you can imagine.”
But the broader trend is positive. As Gerety puts it: “The right number of new banks in the United States is not zero. Similarly, the right number of new bank enforcement actions is not zero.” It’s about finding the right balance.
Portilla believes the momentum will continue: “I think clearly the message from the OCC is that they’re open for business. And I think as long as they continue to make that message clear, there’s appetite in the market to charter new banks.”
But he also anticipates a qualitative shift. “The companies that can pursue a full service charter have a lot of potential to really introduce meaningful new competition into the marketplace. Because that’s a charter that can offer deposit accounts, credit cards, lending.” These larger, better-resourced companies could be the ones that truly reshape the competitive landscape.
Auxier offers perhaps the most sobering perspective on what comes next: “The state of charters five years from now is largely going to depend on the success and discipline of those who are fortunate to earn the right to operate with one in this environment.” In other words, this generation of fintech banks will set the precedent, for better or worse, that determines how open the regulatory window remains.
The bank charter gold rush of 2025-26 isn’t just about numbers, it’s about whether the banking system can successfully absorb new technologies and business models without compromising stability. The preliminary approvals are just the beginning of that story, not the end.
As Alt reminds us, these companies have entered the race. Whether they make it to the finish line will depend on their ability to build real banks with robust controls, experienced teams, and sustainable business models. The regulators are open for business, but they haven’t abandoned their standards.
That is exactly as it should be.