FinTech and Payments Regulation: Charters, Licensing, and the GENIUS Act

Introduction

The regulatory framework for fintech is undergoing its most significant transformation since the sector emerged. For most of the 2010s, fintechs operated in a regulatory gray zone: too innovative for existing banking frameworks, too small to warrant new ones, and often relying on partner bank relationships to access the banking system without holding a charter themselves. That era is ending. In 2025, fintech charter filings hit an all-time high of 20 applications, the GENIUS Act created the first federal stablecoin licensing regime, and the Synapse bankruptcy exposed structural risks in the Banking-as-a-Service model that forced both regulators and fintechs to rethink the partnership approach. For FIG bankers, the regulatory trajectory is clear: fintechs are converging toward the banking perimeter, and the advisory opportunities (charter applications, regulatory M&A, capital structure optimization) are growing in proportion.

Fintechs seeking to become regulated financial institutions have three primary paths, each with distinct trade-offs.

Industrial Loan Company (ILC) Charters

ILC charters, primarily issued by Utah, allow nonbank companies to take deposits and make loans without becoming full bank holding companies subject to Federal Reserve oversight. Block (formerly Square) launched Square Financial Services as a Utah-chartered ILC in 2021. The ILC path is experiencing a renaissance: PayPal applied for a Utah ILC charter in 2025 (PayPal Bank), alongside GM Financial Bank and Stellantis Bank USA. Utah's Department of Financial Institutions had at least six pending ILC applications by mid-2025.

The ILC advantage is regulatory scope: the charter provides deposit-taking and lending authority without the full Federal Reserve supervision that comes with bank holding company status. The disadvantage is political controversy. Community banks, represented by the ICBA, have consistently opposed ILC charters for large commercial firms, arguing they breach the separation of banking and commerce.

OCC National Trust Bank Charters

The OCC emerged in 2025 as the fastest pathway for digital asset and fintech firms seeking federal banking status. The agency received 14 de novo limited-purpose national trust bank applications in 2025, nearly matching the prior four years combined. In December 2025, the OCC conditionally approved five: Circle (First National Digital Currency Bank), Ripple National Trust Bank, BitGo Bank & Trust, Fidelity Digital Assets, and Paxos Trust Company. Mercury and Coinbase submitted applications in late 2025.

National Trust Bank Charter

A national trust bank charter, issued by the OCC, authorizes a bank to engage in fiduciary activities (custody, trust administration, asset management) and, under a 2026 rule amendment effective April 1, certain nonfiduciary activities (payment settlement, staking, brokerage). Trust banks are not required to take deposits or make loans, making them a lighter-weight alternative to full commercial bank charters. The OCC committed to processing complete applications within 120 days under Comptroller Jonathan Gould's leadership. For crypto and digital asset firms, the trust bank charter provides federal regulatory legitimacy, access to the federal banking infrastructure, and clarity on permissible activities, without the full capital and compliance burden of a commercial bank charter.

Full Bank Charters

Some fintechs have pursued full national bank or state bank charters. Varo became the first consumer fintech to receive a de novo national bank charter from the OCC in 2020. SoFi initially pursued an ILC charter but pivoted to acquire Golden Pacific Bancorp to obtain a full-service national bank charter, completed in 2022. Full charters provide the broadest activity set (deposits, lending, payments, trust) but impose the heaviest regulatory burden: Federal Reserve holding company supervision, CET1 capital requirements, stress testing (if assets exceed $100 billion), and comprehensive compliance infrastructure.

The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, signed into law on July 18, 2025, created the first comprehensive federal regulatory framework for payment stablecoins. The Senate passed it 68-30 in June 2025; the House followed 308-122 in July.

The Act's key provisions establish that payment stablecoins issued by insured depository institutions are regulated by their existing primary financial regulator (OCC, FDIC, or state banking agency). Stablecoins issued by nonbank entities require a new federal license from the OCC. Critically, the Act declares that payment stablecoins are neither securities nor commodities, removing them from SEC and CFTC jurisdiction. Only "permitted payment stablecoin issuers" can issue payment stablecoins in the US, creating a licensed-issuer framework.

Implementation takes effect January 18, 2027, or 120 days after primary regulators issue final regulations, whichever is earlier. The OCC issued proposed rules in March 2026, with comments due May 1, 2026.

The Banking-as-a-Service (BaaS) model, where fintechs partner with chartered banks to access deposit insurance and banking infrastructure, faced a severe stress test in 2024. Synapse Financial Technologies, a middleware platform connecting fintechs to partner banks, filed for bankruptcy in May 2024 with customers owed $65-96 million more than was held in partner bank accounts. Thousands of consumers lost access to their funds overnight.

The regulatory response was swift. The OCC issued 36 formal enforcement actions in 2024 (versus 12 in 2023), most targeting BaaS-related violations. Thread Bank received a consent order requiring documented KYC/AML monitoring for fintech partners. Lineage Bank was ordered to develop contingency plans to terminate significant fintech partnerships within 60 days. The FDIC proposed two rules directly targeting BaaS risks: a broadened "deposit broker" definition (August 2024) that restricts fintech platforms' ability to place deposits across multiple partner banks, and a custodial recordkeeping rule (October 2024) requiring banks to maintain real-time records of beneficial owners in pooled custodial accounts.

The enforcement wave is pushing fintechs toward a strategic choice: either invest heavily in governance and compliance within the partner bank model, or pursue their own charter to eliminate the intermediary risk entirely. The surge in 2025 charter applications is partly a response to this regulatory pressure.

The fintech regulatory landscape is shifting from ambiguity to structure. The combination of expanded charter pathways, federal stablecoin legislation, and BaaS regulatory tightening is creating a more defined perimeter around which fintech activities require banking licenses and which do not. For FIG professionals, this convergence creates advisory demand across the spectrum: from charter applications and capital raises for newly chartered fintechs, to M&A where fintechs acquire bank charters, to regulatory strategy where traditional banks evaluate whether fintech partnerships or acquisitions best position them for the evolving competitive landscape.