For much of the last decade, the idea of a fintech, merchant, retailer or other non-bank company owning and maintaining a bank charter was more philosophical than practical. Until recently, it was primarily auto manufacturers like BMW and Toyota that secured Industrial Loan Company (ILC) charters to support their financing divisions. Fast-forward to today, and that discussion has shifted from “if” to “when” and “how” for some large fintechs that believe that they are ready to take on the requirements of managing their own banking activities.
This topic of bank charters and its potential impact on the fintech market is a frequent topic of discussion. The announcement in late December 2025 that PayPal had applied for an ILC certainly added fuel to the fire. FinWise has discussed the charter question in two recent FinWise podcasts; our 2025 Year in Review episode and a lively conversation we had with Kiah Hasslet of Fintech Takes Banking fame.
Part of the discussion includes the discovery that not all charters are created equally and that charter types matter. A traditional state or national bank charter, a trust bank charter, a limited‑purpose bank charter, and a state‑chartered industrial bank each confer different authorities and constraints. These charter types vary in the activities they permit, the degree of access to core infrastructure such as the Federal Reserve’s discount window and payment systems, and the scope and intensity of prudent regulatory oversight.
As examples:
- Custody, crypto, and asset platforms may find trust charters align better with their ambitions because they are purpose built for fiduciary and custody activities, providing regulatory credibility and institutional trust without the added complexity of deposit taking, lending, or full consumer banking requirements.
- Full-service models with deposit taking and lending ambitions aim for traditional bank charters because access to insured deposits enables lower cost, stable funding and supports fully integrated payments, deposits, lending, and risk management at scale—capabilities limited purpose charters are not designed to support.
This topic of bank charters is broad and deep, so we won’t pretend that we can cover all the salient points in this article but will focus on ILCs and aim to cover some of the “whys” and thoughts on the impact.
Why in the World Would an Agile Fintech Want a Bank Charter?
The BaaS model works well early on, but as fintechs mature and become bigger, they may want to lessen their structural dependency on sponsor banks. The surge in charter interest reflects fintechs’ growing desire to control its financial infrastructure instead of relying on a sponsor bank or more likely, two or three banks. These fintechs don’t want to manage multiple approaches to regulatory compliance, risk appetites or capacity constraints that their bank partners may have and believe that taking a more direct approach will lead to greater efficiency.
Fintechs also want to ensure resiliency. The era of sponsor banks behaving badly and being limited in their business activities by their regulators through consent orders spooked fintechs who realized that their sponsor bank relationship represents a single point of failure.
Furthermore, for lending‑centric fintechs, funding costs are everything. With a charter, these fintechs can gain access to insured retail deposits—typically the lowest‑cost and most stable funding source in the system.
Notice that cost savings isn’t one of the reasons a fintech would consider getting their own charter. Securing and maintaining a bank charter – even an ILC which has less oversight requirements than a traditional bank charter- takes money, a lot of knowledgeable people, and systems that rarely represent a cost savings over the fees they are currently paying to their sponsor banks for banking services.
Why Now?
In 2025 alone, nearly 20 applications for bank charters have been filed by fintechs, digital-native banks, and adjacent non-bank players. While ‘20’ may not sound huge, approvals averaged ~5 per year from 2010–2023, so today’s filing pace is a meaningful shift.
What makes this moment different is not a single policy shift, but the convergence of regulatory, market, and structural forces that are pushing both fintechs and regulators to revisit first principles around who gets access to the banking system—and on what terms.
The current political climate also means that non-banks are finding a much more open and friendly environment to secure a charter. If a fintech or other non-bank entity has ever had aspirations for a charter, now is the time. FDIC Acting Chair Travis Hill views ILC charters as critical to the growth of fintechs but also to bring them under direct supervision as opposed to one step removed through the insertion of a sponsor bank between them and the regulator.
It’s interesting to note the types of entities that are taking advantage of this moment in time. We looked at the list of pending applications for ILCs here in Utah and noted that they are all mature, and mostly publicly traded behemoths, PayPal, Nissan, Edward Jones, OneMain Financial, Stellantis and Ford. Hardly what we think of as scrappy, agile fintechs.
Where Will the Industry See Impact?
In the lending, card and payments market, our estimation is that the full impact of “charter chasing” will be limited in its current state. We think fintechs will pursue ILCs and other charter types, but we believe this approach is likely to disproportionately benefit only the largest, most well‑capitalized fintechs, given the scale, capital, and compliance infrastructure required to pursue it successfully. Additionally, it doesn’t mean that these fintechs will cut ties entirely with their existing bank partners. They will continue to maintain those relationships not covered by their limited charters and for products where they lack the expertise to handle the regulatory requirements.
Where there is a strategic match, we are likely to see fintechs with sufficient backing buy smaller community banks and assume their charter. Some will find this a faster track to gaining the people and systems to manage the requirements of a charter also and maybe pick up some business as well. Again here, there are only a few companies that we would consider fintechs who will have the backing to pursue this tactic. This could be the path that larger neo banks pursue. The impact here is that a few sponsor banks lose a client.
The market will be watching closely to see if large retailers like Walmart and others with a built-in customer base will pursue charters. Walmart is an interesting example to consider. Through the years, Walmart has launched a variety of financial services, including a buy now-pay later option, a credit card, money card, check-cashing, money transfers, installment loans, plus their OnePay app. These are primarily dependent on third party partnerships today. Walmart applied for an ILC charter 20 years ago but dropped that initiative after a couple of years. If they choose to reapply, we will want to closely monitor the political reception of the application, as it may signal broader regulatory sentiment and approval risk.
Overall, we currently believe the application for banking charters, and specifically ILCs and limited type charters, is likely to be relegated to large, and possibly some select medium, non-banks. A few sponsor bank partners could see a decline in their revenues, though the impact could be limited for institutions with well-diversified business models and strong compliance and risk platforms (or infrastructure). While greater vertical integration may deliver some operational efficiencies, it also introduces significantly greater regulatory and operational responsibilities, requiring fintechs to build out substantial banking‑experienced infrastructure. If we had to pinpoint the greatest impact, we would suggest that this will put further pressure on traditional banks to operate more like fintech and the organizations with the newly minted charters and will be required to operate more like traditional banks as they assess the realities of what it means to be a bank.