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. By early October 2025, fintech and other nontraditional applicants had already submitted 20 charter-related filings for the year, an all-time high according to QED Investors' count of regulator filings; 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.
The Charter Pathways
Fintechs seeking to become regulated financial institutions have three primary paths, each with distinct trade-offs in activity scope, oversight of the parent company and the burden of approval.
| Pathway | Chartering and insuring agencies | Deposits | Parent company oversight | Fintech examples |
|---|---|---|---|---|
| Industrial loan company (ILC) | State (mostly Utah) plus FDIC | Yes, FDIC-insured | No Fed holding company supervision; FDIC parent conditions | Square Financial Services, GM Financial Bank, PayPal Bank (applied) |
| National trust bank | OCC | No | Generally outside the Bank Holding Company Act | Circle, Ripple, Paxos, Bridge, Coinbase |
| Full national bank | OCC, FDIC, Federal Reserve | Yes, FDIC-insured | Fed bank holding company supervision | Varo, SoFi, Mercury (conditional) |
Industrial Loan Company (ILC) Charters
ILC charters, issued mainly by Utah, let nonbank companies take insured deposits and lend without becoming bank holding companies. Block (formerly Square) launched Square Financial Services as a Utah-chartered ILC in 2021. The path is now in a full ILC renaissance: the FDIC approved deposit insurance for GM Financial Bank and Ford Credit Bank in January 2026 and for Stellantis Bank USA in May 2026, each conditioned on a minimum 15% tier 1 leverage ratio and parent support for capital and liquidity. PayPal filed with the Utah Department of Financial Institutions and the FDIC to create PayPal Bank in December 2025.
- Industrial Loan Company (ILC)
An industrial loan company, also called an industrial bank, is a state-chartered, FDIC-insured bank that can take deposits and make loans while its parent stays outside the Bank Holding Company Act. That exemption lets a commercial or technology company (an automaker, a payments firm, a brokerage) own a bank without Federal Reserve consolidated supervision, in exchange for FDIC conditions such as high capital and a parent support agreement.
The ILC's advantage is regulatory scope; its disadvantage is political controversy. Community banks, represented by the ICBA, have long argued that ILCs owned by large commercial firms breach the separation of banking and commerce, and the ICBA and the Bank Policy Institute asked the FDIC in February 2026 to approve no ILC, PayPal Bank included, until Congress closes the "ILC loophole."
OCC National Trust Bank Charters
The OCC became the fastest route to federal status for digital asset firms. Its own chartering tally shows 18 de novo charter applications in 2025 and 31 more in 2026 through late October, a sharp break from the near-standstill in new charters after 2008. In December 2025, the OCC conditionally approved five national trust banks: two de novo charters (Circle's First National Digital Currency Bank and Ripple National Trust Bank) and conversions of BitGo, Fidelity Digital Assets and Paxos from state trust companies. More approvals followed in 2026, including Stripe-owned Bridge and Crypto.com in February and Coinbase in April.
- National Trust Bank Charter
A national trust bank charter, issued by the OCC, authorizes a bank to conduct the operations of a trust company: custody, trust administration and asset management. An OCC final rule effective April 1, 2026 confirmed that these banks may also engage in non-fiduciary activities, such as custody and safekeeping, alongside their fiduciary work. Trust banks do not take deposits or make loans, so they carry no FDIC insurance and a lighter capital and compliance burden than a full commercial bank. For crypto firms, the appeal is federal legitimacy and a single national supervisor in place of state-by-state trust licenses, and the OCC seeks to decide complete applications within 120 days.
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. Mercury is the latest entrant: it won OCC conditional approval for Mercury Bank, N.A. in April 2026, with FDIC and Federal Reserve approvals still to come. Full charters provide the broadest activity set but the heaviest burden: Fed holding company supervision, CET1 capital requirements, stress testing (if assets exceed $100 billion), and comprehensive compliance infrastructure.
The GENIUS Act: Federal Stablecoin Regulation
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 creates a licensed-issuer framework: only "permitted payment stablecoin issuers" can issue payment stablecoins in the US. Subsidiaries of insured depository institutions are approved and supervised by their existing federal regulator (the OCC, FDIC, Federal Reserve or NCUA). Nonbank issuers need a federal license from the OCC or, if they have under $10 billion outstanding, can opt into a state regime certified as substantially similar to the federal one. Critically, the Act excludes permitted issuers' payment stablecoins from the definitions of security and commodity, removing them from SEC and CFTC jurisdiction. Market size and global regimes are covered in the companion article on stablecoin regulation.
The Act takes effect on the earlier of January 18, 2027 or 120 days after the regulators issue final rules. The OCC proposed its implementing rule in March 2026 and finalized it on October 21, 2026, with the rule and the Act both taking effect January 18, 2027. It requires one-for-one reserves in high-quality assets with at least 5% held in immediately available instruments, sets a $5 million capital floor for newly approved issuers, requires redemption within two business days and keeps the ban on paying yield to holders. The OCC will announce separately when it begins accepting license applications, and the FDIC and Federal Reserve rules for bank-affiliated issuers were still at the proposal stage when the OCC finalized its own.
Banking-as-a-Service: The Post-Synapse Reckoning
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 on April 22, 2024 with customers owed $65-96 million more than partner banks held, and thousands of consumers lost access to their funds overnight.
The enforcement wave predated the collapse and intensified around it. Federal regulators issued a run of consent orders against BaaS partner banks in 2024: the FDIC against Lineage Bank, Sutton Bank, Piermont Bank and Thread Bank, the OCC against Blue Ridge Bank, and the Federal Reserve against Evolve Bank & Trust, a key Synapse partner. Thread Bank's order required documented customer due diligence and suspicious activity monitoring for its BaaS program; Lineage Bank had to plan for an orderly exit from significant fintech partnerships. The FDIC also proposed a broadened "deposit broker" definition (August 2024) and a custodial recordkeeping rule (September 2024) requiring banks to track the beneficial owners and balances behind pooled custodial accounts. The brokered-deposit proposal did not survive the change in FDIC leadership; the agency withdrew it in March 2025, leaving supervision and enforcement as the main levers.
That pressure forces a strategic choice: invest heavily in compliance within the partner bank model, or pursue a charter and eliminate the intermediary risk. The 2025 surge in charter applications is partly a response.
The fintech regulatory landscape is shifting from ambiguity to structure, with a clearer perimeter around which activities require banking licenses. 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.
