I am often asked why a company would want to go through the process. Working within theregulatory environment is not a painless process, 12 to 18 months to get approval is not unusual. Some never get approval, the last one that created an uproar was in 2005 when Walmart applied for an ILC charter to be known as Wal-Mart Bank. They withdrew the application in 2007 due to the intense political, regulatory and industry opposition. But an ILC has some core advantages and is driving the current wave of applications.

Regulatory flexibility - the parent retains its commercial operations without registering as a bank holding company.
Lower-cost funding- FDIC-insured deposits are significantly cheaper than capital markets debt or warehouse lines, for a company like PayPal with $30 billion in loan originations, the savings are transformational.
Elimination of third-party dependencies - direct access to payment rails and deposit-taking removes sponsor bank intermediaries.
Nationwide lending under one license - an ILC can export its home state's interest rates across state lines, replacing a patchwork of state licenses.
Vertical integration - banking products embed directly into existing platforms, capturing value that would otherwise flow to partner banks.

The regulatory process is daunting, but the environment is shifting in favor of applicants. FDIC Chair Travis Hill has signaled openness to innovation, the agency withdrew a restrictive 2024 rulemaking and replaced it with a comprehensive Request for Information seeking comment on how the ILC framework should evolve, including whether different parent company types warrant different treatment. Treasury Secretary Bessent has publicly emphasized the urgency of new bank formation, noting that more than half of community banks have disappeared since the financial crisis.

The Race for Banking Charters: Why ILCs Can Be a Growth Engine for Advisory Firms

Related Stories

Recommended For You