OCC Approves Zero Fintech De Novo Bank Charters Under Acting Comptroller Hsu

The OCC under Acting Comptroller Michael Hsu had approved zero de novo bank charter applications filed by fintech companies as of October 2023, representing a significant regulatory bottleneck for the BaaS and embedded finance ecosystem. More than half of fintechs that filed de novo charter applications with the OCC since 2017 ultimately withdrew after lengthy review periods. The FDIC similarly tightened its posture, with no fintech applications approved after Marty Gruenberg replaced Jelena McWilliams as chair, though earlier approvals had been granted to Square Financial Services and NelNet for industrial loan company status.

Major fintechs including SoFi, Brex, and Rakuten withdrew their FDIC ILC applications. De novo banks face a median total capital requirement of $55 million since 2015, plus the burden of building enterprise and compliance risk management programs to bank-regulator standards. Federal Reserve Governor Michelle Bowman acknowledged in April 2023 that the onerous de novo process was hurting banking competition and called for a more streamlined approach.

As a result, acquisition of existing banks became the preferred pathway for fintechs seeking to enter banking, fundamentally reshaping the BaaS landscape's structure.