QED Investors and Oliver Wyman have released a joint report examining the increasing trend of fintech companies seeking bank charters. The report, titled "Seizing the Bank Charter Moment: Implications for Fintechs and Banks," is based on research, analysis, and interviews with more than a dozen executives from leading fintech firms.
According to the report, there has been a record number of 20 applications filed this year by fintechs, digital-native banks, or nonbanks for charters or bank acquisitions. This rise includes global neobanks, online lenders, crypto-focused fintechs, brokerage firms, B2B payments providers, payment processors, money transfer services, and captive lenders.
The study identifies several factors behind this development. These include the growing maturity of large-scale fintechs making them more suitable for a bank operating model; an emerging opportunity for charter approvals due to changes in political and regulatory conditions; and concerns about long-term risks associated with the sponsor bank model.
The report outlines which types of fintech companies may benefit from pursuing charters and discusses the economic trade-offs involved in becoming a bank. It also explores how an increase in chartered fintechs could reshape competition in financial services and provides recommendations for best practices during the charter application process. Additional analysis covers whether it is better for a fintech to apply for a new charter or acquire an existing bank, how charters affect company valuation, potential impacts on banking-as-a-service models and sponsor banks, as well as possible outcomes for stablecoins and digital assets.
Nigel Morris, Managing Partner at QED Investors, said: “The current macro and regulatory environments have created a unique window for a specific category of fintechs to secure a bank charter. For mature fintechs with scaled lending businesses, the door is wide open, albeit for an unknown period of time, to gain stability and trust through a charter. With access to lower-cost funds and reduced reliance on sponsor banks, these fintechs can continue to take market share from the 4,500 banks in the U.S., many of which remain subscale, slow in adopting digital, and tied to outdated branch infrastructures. This moment could act as a real inflection point in the history of financial services.”
Ryan Feeley, Partner at Oliver Wyman added: “With the ongoing charter wave reflecting increased maturity and ambition among fintechs, U.S. banks can no longer afford to overlook the significant threat posed by these challengers. To maintain their long-term competitiveness, banks must embrace a customer-centric mindset, modernize their technology and proactively pursue fintech acquisitions and partnerships.”
QED Investors is an Alexandria-based venture capital firm focused on investing in disruptive financial services companies worldwide. Founded by Nigel Morris and Frank Rotman in 2007, QED Investors has invested in several notable companies such as AvidXchange, Credit Karma, Klarna and Nubank.
Oliver Wyman is part of Marsh McLennan (NYSE: MMC), providing management consulting services across various industries. Marsh McLennan operates globally with over 90,000 employees and annual revenue exceeding $24 billion.
A copy of the full QED Investors Oliver Wyman report can be found here.