What Do You Do When You Can Do Anything?
Happy Friday, Fintech Takers!
It has been quite a week (and next week will be too … make sure to say hi if you’ll be at FintechXchange!), so we’re going to keep it fairly brief today.
There have been a lot of M&A transactions and applications for bank charters of various types, and I think now would be a good time to step back and see if we can discern any patterns.
- Alex
P.S. — If you are interested in a no-nonsense, on-the-ground discussion about where AI is actually being used by banks and fintech companies (vs. where all the AI thought leaders tell you it’s being used), join Jason Ioannides and me for our upcoming virtual event — Where AI Meets Reality — on February 25. Please bring your questions!
What Do You Do When You Can Do Anything?Copy anchor linkCopied
One thing that’s weird about fintech is that the level of enthusiasm for building new companies in financial services is wildly out of proportion to the available surface area to build on.
This is due to the heavily regulated nature of financial services in the U.S.
To offer financial products or services to consumers or businesses, you generally need to be chartered and/or licensed to do so directly, or you need to work with a company that is. And because, historically, those charters and licenses were hard to acquire (either by asking for a new one or trying to buy a company that already had one), the companies that have them tend to be very protective of them. They operate conservatively. They don’t move fast or take as many risks as you otherwise might expect them to. And as such, they don’t tend to be very innovative, which creates the conditions ripe for disruption, which is why so many venture capital investors have become obsessed with financial services in recent decades.
But, of course, those same conditions (the necessity of a charter and/or licenses and their relative scarcity) mean that the disruptors that those VC investors finance don’t have a ton of room to operate. They either have to sell their products through regulated entities or, if the opportunity presents itself, become a regulated entity themselves.
The contradictory conditions I just described help explain a lot of the most important trends in fintech over the last 20 years, from the rise of Banking-as-a-Service to the scramble by fintech lenders like LendingClub and SoFi to acquire community banks.
In a market where demand (entrepreneurs and investors wanting to build in financial services) persistently outstrips supply (direct access to end financial services customers), you will tend to see some weird and unexpected adaptations.
It’s a little like real estate in Hong Kong. When you build an attractive and growing city (with a current population of roughly 7.5 million) in a place with an extremely limited amount of developable land (just over 100 square miles), you will produce some odd conditions, including:
- Parking spaces can cost more than apartments in other global cities. Individual parking spots in Hong Kong have sold for prices comparable to luxury homes elsewhere, because a rectangle of concrete with a license is still land.
- There’s a whole housing category called “nano flats.” These are purpose-built apartments so small that beds fold into walls, kitchens hide in cabinets, and the shower may be directly over the toilet — and they’re sold as aspirational.
- Shopping malls exist under apartment towers by default. Hong Kong’s “podium towers” put retail, transit, schools, and parking below and homes stacked above. Entire neighborhoods live in a single structure.
It all makes perfect sense in Hong Kong, but imagine if you grabbed those Hong Kong real estate developers and teleported them to eastern Montana (150,000 people spread over 50,000 square miles).
They would be amazed (and probably partially paralyzed) by the sheer vastness of the opportunity to build.
I think this is a reasonable analogy for how executives and investors in banking and fintech felt in 2025, when the Trump administration threw the doors wide open. Suddenly, anything you wanted to do, as it relates to getting a bank charter or acquiring or partnering with a company that already has one, is entirely feasible. And indeed, federal regulators have been openly solicitous on this front, telling the industry, “Come knock on our door and tell us what you’d like to do.”
This is very exciting! And also risky! But most of all, it’s a bit disorienting. After all, we’ve spent so much time trying to figure out ways to carefully and incrementally solve for the imbalance between demand and supply without pissing anyone off or breaking anything. We’re not trained to think: OK, I can probably do anything I want, and the regulators won’t get mad if I pitch something novel, so what’s the best thing to do? What should I do?
Indeed, despite a banner year of bank/fintech acquisitions, partnerships, and charter applications in 2025, I think we’re only scratching the surface of what executives in our industry are going to try to do with this new regulatory freedom over the next three years.
It’s going to be frighteningly creative.
So, for today’s essay, I thought it would be good to get a lay of the land and review some of the most interesting transactions from the last few years and offer some speculative thoughts on what they might mean for the next couple of years.
What Companies Are Actually Doing With Their New FreedomCopy anchor linkCopied
When you look closely at the most interesting transactions of the last few years, they’re not random. They cluster into a small number of repeatable moves, each corresponding to a different belief about what advantage in financial services must be owned rather than rented.
Here is a rough map of the types of companies that want to build in financial services and the motivations they might have for making specific acquisitions (of either companies or charters):
Now let’s zoom in and look at those patterns by analyzing some specific bank and fintech transactions (M&A and charter applications). I’ll also give my 2 cents on what they mean for the near-term future.
1. Building a bank from scratch: “We want to be the bank.”Copy anchor linkCopied
The most explicit response to expanded regulatory openness is the decision to build a real bank from the ground up.
Erebor and Mercury represent two ends of the same conviction. Erebor is a new company that went straight to the OCC for a de novo national bank charter (leveraging its extensive political connections), effectively saying that if you believe durability, balance-sheet control, and regulatory legitimacy are core to your strategy, there’s no reason to wrap yourself around an existing institution.
Mercury, by contrast, is an established neobank that reached the same conclusion from the opposite direction: after years of renting banks’ charters (and making some huge mistakes along the way), it flipped its position 180 degrees and applied to become a de novo national bank.
In both cases, the logic is the same. These companies believe that to compete fully with incumbent banks over the long term, they need to own the full stack — charter, deposits, risk, and governance — even if that means slower growth in the short run. This is the fintech equivalent of deciding to buy land outright rather than continuing to lease space in someone else’s building.
Alex’s Two Cents on where this trend might go: I don’t see this being a particularly popular path, despite it now being an option. Erebor is a very weird edge case (rich, well-connected founder focused on serving a specific, high-value niche), and I think it’s likely to supplement its direct banking business by getting into other areas like BaaS and stablecoins. Mercury is a more straightforward case. It wants to be the new Silicon Valley Bank, which is fine, but not overly risky. The real test will be if a neobank like Chime decides to go for a charter.
2. Lenders buying funding: “This is about cost of capital.”Copy anchor linkCopied
If de novo banks are the most philosophically ambitious move, lender-driven charter strategies are the most economically straightforward.
Affirm’s decision to pursue an industrial loan company charter fits a pattern that goes back decades: lenders eventually discover that their biggest vulnerability is not underwriting or distribution, but their dependence on wholesale funding and capital markets. An ILC offers a way to gather insured deposits and stabilize funding without becoming a full national bank (or, more critically, a bank holding company). In Affirm’s case, the ILC charter (from Nevada, not Utah, weirdly) will complement an already-strong capital markets function, though, over time, I imagine it will become the dominant source of funding for the company.
Enova’s acquisition of Grasshopper Bank complicates this picture in an interesting way. On paper, Enova could have bought a cheaper, less sophisticated bank. Instead, it paid a premium for a relatively new and modern fintech-oriented bank. The reason (I think) is that Enova (an older and less tech-savvy fintech lender) valued Grasshopper’s technology and customer base (SMBs and startups, which is a newer area of focus for Enova) above what an average community bank would have cost.
Aven takes this same impulse in a stranger direction. Rather than acquiring a bank or applying for a charter, Aven chose to sponsor the creation of a federal credit union. On its face, this looks bizarre. Credit unions are small, constrained by field-of-membership rules, and rarely the centerpiece of venture-backed fintech strategy. However, as I explained in a recent newsletter, viewed through the funding lens, the move makes sense.
Alex’s Two Cents on where this trend might go: This has been a very common strategy for a long time, and now that the floodgates have been thrown open on ILCs (read this from Kiah if you want to understand more about this specific type of bank), I expect we will see a lot more of it.
3. Trust banks and selective regulation: “We want the privileges, not the whole bundle.”Copy anchor linkCopied
Bridge and Coinbase both applied for national trust bank charters, but neither is trying to become a full-service consumer bank. Instead, they are targeting specific regulatory privileges: qualified custody, clearer supervisory oversight (especially under the GENIUS Act), and access to Fed master accounts. Trust charters (which have not been especially popular, historically) offer a way to wrap core activities — custody and payment settlement, primarily — in a federal regulatory framework without taking on credit risk or FDIC-insured deposits.
These companies don’t want everything a bank charter provides; they want the parts that solve their most pressing problems. In an environment where regulation is scarce, that selectivity is impossible. In an environment where regulators are open to experimentation, it becomes rational.
Alex’s Two Cents on where this trend might go: National trust banks! What a fun wrinkle. Kiah and Jason Mikula have both written about them (here and here), so I won’t go into any more depth on their relative merits beyond what I’ve already done. I will say that I find it interesting that Bridge (and therefore Stripe) is focused on acquiring a charter for the purposes of providing BaaS-like infrastructure to others, whereas Coinbase is primarily consumer-facing.
4. Owning the charter to enable others: “The bank is the platform.”Copy anchor linkCopied
Darragh Buckley’s purchase of Twin City Bank is best understood not as a founder trying to become a banker, but as a platform builder deciding that the regulated entity itself is the product.
Darragh is already the founder and CEO of Increase, a BaaS middleware platform that works with bank partners to enable sophisticated, scaled-up fintech companies. So, this move is a natural extension for him (he had been trying to acquire a community bank for a while), and it follows the same pattern set by Jackie Reses (Lead Bank) and William Hockey (Column).
The goal here is not to compete with Chase or Wells Fargo for end customers. It’s to build a bank designed from day one to serve other companies — particularly fintech companies — as its primary customers. In this model, resilience, compliance, and regulatory control aren’t constraints; they’re features.
Alex’s Two Cents on where this trend might go: I’ll be honest, I’m a bit worried about BaaS, as a category. It’s not going away, but when it’s viable for the most successful fintech programs to transition to their own bank charter or be acquired by a chartered bank, that puts a lot of unpleasant economic pressure on BaaS banks and middleware platforms, which need the scaled-up programs to help pay for the sub-scale programs. Column, for instance, will be losing both Mercury and Brex, which is a big deal.
5. Banks buying better products: “We already have the land; we need better buildings.”Copy anchor linkCopied
Finally, there are the transactions that move in the opposite direction.
Capital One’s acquisition of Brex and Coastal’s acquisition of GreenFi aren’t about regulatory access at all. These banks already have charters, deposits, and Fed access. What they’re buying is product velocity, customer experience, and software-native workflows.
I’m not sure these specific acquisitions are the best bets for these banks to make (as I wrote about here and here), but the larger strategy is clear. Incumbents are trying to import the things regulation made hard for them to build internally: modern tooling, faster iteration, and new, more innovative products.
Alex’s Two Cents on where this trend might go: As more banks wake up to the reality that competition in their industry is now defined by product excellence, rather than distribution moats, they will increasingly look to buy product excellence by acquiring fintech companies. BTW — This will be a welcome off-ramp for fintech investors, even if the sale prices aren’t quite what they hope.
Where This Leaves UsCopy anchor linkCopied
Seen together, these transactions suggest that the real shift underway isn’t simply “more fintechs becoming banks.” It’s that companies now feel empowered to ask a more fundamental question: Which advantages do I actually need to own, and which can I continue to rent?
For years, scarcity forced everyone into the same contortions. Now, with more regulatory surface area suddenly available, strategies are diverging instead of converging. Some companies are planting flags. Others are buying just enough access to unlock economics. Still others are doubling down on product and letting partners handle the rest.
That’s why the next few years are likely to look frighteningly creative. When land becomes available after decades of constraint, people don’t just build more of the same buildings. They experiment — with mixed results, unexpected forms, and entirely new ways of using space.
Financial services is entering that phase now.
MORE QUESTIONS TO PONDER TOGETHER
Big news for the endlessly curious (yes, you): I’m collecting your fintech questions on a rolling basis.
What’s keeping you up at night? What great mysteries in financial services beg to be unraveled? Think of it this way, if a stranger is a friend you just haven't met yet, your question is a Fintech Takes conversation waiting to happen.
One that could headline a Friday newsletter or be answered in an upcoming Fintech Office Hours event.
Drop your question here, whenever inspiration strikes!
Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
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