FinTech

The Changing FinTech Landscape

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20 SPOTLIGHT ON BANK ACQUISITIONS AND CHARTERS For FinTechs that seek to go "all in" on banking and look beyond bank partnership arrangements, there are generally two options: acquire an existing bank or establish a new one. Several high-profile FinTechs have expanded recently by acquiring depository institutions. For example, LendingClub, the marketplace lender, acquired Radius Bank, and Jiko, a FinTech startup, acquired Mid-Central National Bank, resulting in both LendingClub and Jiko becoming bank holding companies. Other FinTechs have pursued and obtained new federal or state banking charters. While Varo and Anchorage received approval from the Office of the Comptroller of the Currency (OCC) to organize national banks, Square and Nelnet obtained industrial loan company charters from Utah, including deposit insurance from the Federal Deposit Insurance Corporation (FDIC). Brex is also pursuing a Utah industrial loan company charter and FDIC deposit insurance. SoFi, on the other hand, has abandoned its plan to seek a national charter from the OCC and is instead acquiring an existing national bank, which would result in SoFi becoming a bank holding company like LendingClub and Jiko. Other forms of state charters or licenses, such as the New York limited purpose trust company and the Wyoming special-purpose depository institution, have been pursued by FinTechs engaged in cryptocurrency exchange. In other instances, FinTechs have been committed to the partnership model to leverage technological capabilities and offer innovative products, such as the recent partnership between PayPal and Paxos to provide PayPal customers with cryptocurrency trading capabilities. FinTechs are also demonstrating diversity in their business focus. Companies such as Daylight and Climate First Bank have chartered banks to pursue mission-driven goals such as serving the LGBTQ+ community and organizations committed to environmental sustainability, respectively. Purpose-driven companies seeking to provide financial services to niche markets continue to push the boundaries of what is considered a traditional, regulated financial services firm. Not Every Charter is the Same The terms "bank" and "bank charter" are used loosely by many in the FinTech industry. However, FinTechs marketing themselves as "banks" while lacking the necessary licenses can face adverse consequences under U.S. federal or state banking laws. FinTechs interested in obtaining a charter, either by acquisition or de novo, also need to understand the powers of each type of charter and its limitations. In short, not every charter is created equal.

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