Banking on Fintech

Banking on Fintech

The financial crisis of a decade ago catalyzed many secular changes in the U.S. banking system, but few are starker than the collapse in new bank charters. According to data from the Federal Deposit Insurance Corporation (FDIC), between 2000 and 2008, well over 100 new bank charters were granted each year on average. A drought followed the financial crisis, however; between 2011 and 2016, just two charters were awarded in aggregate. Since 2017, the average number of charters granted has ticked up slightly but remains an order of magnitude shy of pre-crisis norms. Yet despite the broad disinterest in bank charters, we are seeing a surge of interest from an interesting source: fintech.

Historically, technology companies operating in banking or bank-adjacent markets have avoided the acquisition of bank charters for several reasons. The chief ones include the fact that operating outside of the formal banking system presents regulatory arbitrage opportunities, the difference in valuations between banks and fintech companies has typically been stark, and operationally, the cultural differences have also been great.