Bank Charter
A bank charter is the licence that lets a company take deposits, lend against them and hold them under deposit insurance, granted by a banking regulator after a review of its capital, owners, management and business plan. Fintechs get one by applying for it, by buying a bank that has one, or by renting one from a partner bank.
- Also known as
- Banking licence, Bank license, Banking authorisation
- Used at
- the point a fintech's deposits, lending or payments volume outgrows what a partner bank will sponsor
- Binding
- yes — a charter carries capital minimums, supervision, examinations and restrictions on what the group may own
- Typical timeframe
- 12–24 months for a de novo application in the US or UK; 3–9 months to close the purchase of a small bank, plus the regulator's change-of-control approval
- Typical cost
- tens of millions in capital and compliance build before the first deposit; Varo's national charter (2020) took three years and a reported $100m
- Parties
- the applicant, the chartering authority (OCC or a state in the US, the PRA and FCA in the UK, the ECB via the national authority in the euro area) and the deposit insurer
How a bank charter works in practice
There are three routes, and the choice is a deal decision. The de novo route means applying: a business plan, three years of projections, capital of at least the regulator's minimum plus a buffer, a board and senior managers the regulator approves individually, and a compliance programme built before it is used. Varo took this route and became the first US consumer fintech with a national charter, in 2020.
The acquisition route means buying a bank that already has one. LendingClub paid $185m for Radius Bank in 2021 to stop being a marketplace that sold loans to others and start funding them with its own deposits; SoFi bought Golden Pacific Bancorp for about $22m the same year and became a national bank the next. The price buys the charter, the regulator's confidence and the bank's deposits; the regulator's approval of the change of control is the condition everything else waits on, and it is where a buyer's ownership, capital and business plan get the same review a de novo would.
The third route is not to own one. Banking-as-a-service lets a fintech offer accounts and cards on a partner bank's charter for a fee, which is how most neobanks start. It is fast and cheap until the volume, the regulator's attention or the sponsor's risk appetite changes — the 2024 collapse of the middleware provider Synapse froze the accounts of fintech customers at several sponsor banks.
Example
A lending fintech funds £400m of loans through a warehouse line at 7.5% and a forward-flow sale to a bank that keeps most of the margin. With a charter it could fund the same book with deposits paying 3.5%: £16m a year of interest saved on the line, plus the margin it currently gives away. Against that: £60m of regulatory capital tied up at a 15% ratio on the book, £8m a year of compliance and supervision cost, and 18 months of application. Buying a small bank with £150m of deposits for £30m, at 1.2× its tangible book value, would cut the wait to nine months — and put the change-of-control approval, not the price, on the critical path.
Common mistakes
- Underestimating the capital the regulator will require on day one, which is usually the plan's year-three figure, held from year one. - Buying a bank for its charter and discovering that the regulator's approval of the buyer is the harder application. - Treating the sponsor-bank route as permanent; the sponsor can end it, and its regulator can end it for them. - A plan that assumes the charter's freedoms without its restrictions — on the group's other activities, on affiliate dealings, on dividends. - Forgetting that a charter does not travel: a UK licence is not an EU passport after 2020, and a state charter is not a national one.