Crypto Companies Aim to Become Banks: The Number of Applications is Growing

According to Reuters, the past month has seen a significant rise in the number of crypto companies and fintech startups applying for banking licenses. For many, obtaining a license is not just a way to expand their business, but also a chance to lower the cost of borrowing, gain access to deposits, and build greater trust with customers.

We have seen a lot more interest. We are working on several applications now,

said Alexandra Steinberg Barrage, a partner at law firm Troutman Pepper Locke.

A banking license provides crypto companies with significant advantages over traditional financial institutions, enabling them to offer a broader range of services at lower borrowing costs. Moreover, this could address the issues with the debanking of crypto companies.

However, the approval process for such applications typically takes a long time, often spanning several years. For example, between 2010 and 2023, regulators approved only a handful of applications, a far cry from the early 2000s.

That said, after Donald Trump’s election victory, the situation began to shift. Regulators adopted a more favorable approach toward innovative companies, influenced by the priorities of the new administration.

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One such example is the approval of fintech giant SmartBiz’s application to acquire a regional bank. That was the first banking license approval since 2021. However, this shift in regulatory stance does not mean a relaxation of the strict requirements companies must meet when applying for a banking license.

Regulatory Barriers

Despite the regulatory relaxations under the new administration, obtaining a banking license remains a challenging process. Applicants must invest between $20 million and $50 million, and the approval process can stretch over several years due to strict regulatory requirements, including anti-money laundering measures and compliance with banking privacy laws.

Additionally, experts and legal professionals point out that maintaining high standards for scrutiny is crucial for financial stability. Institutions like the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve continue to thoroughly evaluate applications to minimize risks to the banking sector.

However, most analysts believe that the increase in licensed fintech and crypto companies will not only accelerate the growth of individual players but also boost competition and modernize the financial market.

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