FDIC Approves ILC Bank Charters for Square and Nelnet
The FDIC approved two new Industrial Loan Company charters for Square Financial Services and Nelnet Bank around March 2020, breaking a de facto moratorium on new ILC charters, mergers, or changes in control that had been in place for over a decade. Square's ILC charter would allow the payments giant to offer FDIC-insured deposits and small business loans directly, reducing its reliance on partner banks. Nelnet, primarily known for student loan servicing, received approval to establish Nelnet Bank.
Alongside the approvals, the FDIC proposed new rules for supervising the parent companies of ILC institutions, addressing longstanding concerns about the separation of banking and commerce. The approvals represent a significant milestone in fintech companies' pursuit of direct banking capabilities. Financial terms were not applicable as these were regulatory charter approvals.
The decisions signal a more accommodating regulatory stance toward fintech-bank convergence and could encourage other technology companies to pursue similar charters.
- Fintechs gaining direct banking charters reduces dependency on BaaS sponsor banks, potentially disrupting the middleware model
- Sets regulatory precedent that could encourage more tech firms to pursue ILC charters, reshaping the competitive landscape between banks and fintechs