New Administration Outlook: An Opening for a National Payments/Fintech Charter—and a Pathway to Financial Modernization?

Recent announcements by Trump Media and Technology Group (TMTG) and X might signal that financial modernization may have finally reached a tipping point. With the right regulatory environment, fintechs and other new market entrants could have a path forward to innovate and compete while also being subject to similar and robust regulation and supervision as banks, setting the stage for the next generation of financial services.

TMTG, the parent company of Truth Social, has announced plans to expand into financial services as "Truth.Fi." The platform will offer separately managed accounts, ETFs, and bitcoin investments in partnership with a financial institution which will custody the assets and advise on investment strategies. TMTG has not yet specified how Truth.Fi will be chartered, licensed, or otherwise regulated.

X (formerly Twitter and owned by Elon Musk) also announced that it will partner with Visa to offer a new service, "X Money," to provide peer-to-peer payments from users' debit cards and allow transfers to bank accounts, with Visa facilitating transactions. While X Payments LLC—X's financial services arm—has obtained multiple state money transmitter licenses, the company appears to have hit regulatory hurdles and is still waiting on various states. When or if those licenses will be granted is unknown, and, notably, last year the company withdrew its application that was pending before the New York Department of Financial Services.

Both companies are looking to carve out new opportunities in the financial services sector. One company is associated with the President of the United States, who will appoint the heads of the federal banking agencies that regulate either a national bank option or a state-chartered bank option with FDIC deposit insurance. The other company is owned by an individual who previously founded PayPal and was a major donor and currently serves as an advisor to the president on a host of deregulatory and modernization issues.

It raises the question, could a federal option for fintechs finally happen?

Closer Than Ever

The announcements come right as the second Trump Administration is adopting a more pro-crypto, pro-innovation stance on financial regulation, signaling changing tides for fintechs and other financial institutions involved in payments and novel products and services. For years, fintechs have lobbied for regulatory modernization—specifically a federal charter that would allow them to offer services efficiently (e.g., one streamlined license/charter)—while banks have argued that similar activities should be regulated in a similar way.

The number of fintechs will only continue to grow. Former Acting Comptroller of the Currency Brian Brooks has noted that there are sound underlying reasons for the rise of fintechs as a distinct category within the financial services market. First, "consumers have voted with their feet … toward firms that specialize in particular financial products." Second, fintech has attracted investment dollars "because returns on a given activity conducted on a specialty fintech platform are far higher than returns on the same activity when bundled with other activities inside a traditional depository institution." These statements are as valid today as they were four years ago and will likely prove compelling in advancing arguments for the issuance of a new federal charter.

A federal charter would allow fintechs to offer financial services without needing a full national bank charter (or to engage in all of the core banking activities of a national bank), state-by-state licenses for various non-bank activities, or a bank partner.

A federal charter for fintechs and other payments companies has been a topic of discussion with some level of acceptance from the heads of the OCC under the prior Obama, Trump, and Biden Administrations. But with the current administration's stated views on novel financial products, services, and technologies—and TMTG's move into financial services and X's owners' current prominent role in the administration—the prospect of making it a reality seems stronger than ever.

Currently, fintechs face steep barriers to entry into the U.S. payments market. They either must secure 50-state money transmitter licenses or partner with a bank or licensed money transmitter—both options involve costly regulatory burdens as well as both direct consequences (e.g., managing multiple state regulators) and indirect consequences (e.g., through the federal banking agencies' third-party risk management expectations). Alternatively, fintechs could opt to become fully operational banks themselves (through acquisitions or seeking de novo charters), but this route is costly, possibly inefficient for many fintech business models, and was practically impossible to secure during the Biden Administration. It also stands in stark contrast to non-U.S. fintechs in certain countries which can branch into the United States and do practically everything a national bank can do (other than accept FDIC-insured deposits)—an option that is not available to U.S. fintechs.

This is where a federal charter/option would be a game changer for the U.S. payments market. It would allow companies to operate nationwide without the costly, inconsistent, and time-consuming 50-state licensing process, while still ensuring robust and sophisticated oversight. While it likely would involve some amount of tailoring compared to a full national bank charter—based on the activities and risks involved—it would involve core concepts of safety and soundness and other prudential requirements that are central to federal bank regulation and supervision.

The Roadblocks: Legal Challenges and Regulatory Pushback

However, the path to a federal charter is not without its obstacles.

• Special-purpose national banks for fintechs option. In 2016, the OCC attempted to create a special-purpose national bank charter for fintechs which would allow them to engage in certain activities including money transmission and lending activities without the need for FDIC deposit insurance. But this initiative faced significant legal challenges from state regulators. These challenges ultimately halted progress, making the prospect of a federal payments charter an uphill battle for the OCC and untenable for market participants who were certain to immediately face litigation risk upon filing an application to the OCC. But if a Trump-related or Musk-owned entity (or both) can forge ahead, bear the litigation risk, and win, other fintechs and applicants may stand to benefit.
• National trust bank option. It is also possible that these entities could seek a charter from the OCC as a national trust bank. While not subject to the same litigation risk, it would be consistent with an expected reinterpretation or revocation of OCC Interpretive Letter 1179, which nominally preserved crypto-related activities as legally permissible but subjected them to a pre-clearance process that practically precluded engaging in crypto-related activities. If one of these entities were chartered as a national trust bank, it may persuade others in the payments space to seek this charter option, especially those involved in novel financial products and technologies.

• ILC option. Another potential route for fintechs is through industrial loan company (ILC) charters. ILCs are regulated by state banking authorities as the chartering authority and the FDIC because they require FDIC deposit insurance. (ILCs and their parent companies and nonbank affiliates are not typically regulated or supervised by the Federal Reserve because ILCs are not considered "banks" for purposes of the Bank Holding Company Act of 1956.) As ILCs, fintechs may make loans and accept certain but not all deposits. The ILC option is also preferable to novel state charters which, despite being well intentioned, are not always recognized as banks under other states' laws and could require non-bank licensing. For instance, a novel bank in its home state might be required to be licensed as a money transmitter in another state.

  But seeking FDIC approval for ILC deposit insurance applications has proven nearly impossible for decades: only one application was approved in the last four years, and it was described as "a lot like a community bank," making it less noteworthy than a fintech's approval, which arguably would not look a lot like a community bank. While the FDIC's reluctance to approve ILCs for fintechs without a traditional banking model has—for some time—been a clear damper on this option, under the FDIC's new acting Chair and specifically through his new priorities, the FDIC may seek to change this dynamic.

Why Change Is Needed

Because the current regulatory landscape offers few options for fintechs to operate efficiently and competitively in the U.S. market, the need for regulatory reform and modernization is clear. Other countries have outpaced the United States on these developments.

Truth.Fi and X Money could very well accelerate change. While the road ahead may raise legal challenges and new regulatory questions, the momentum behind these new financial services offerings suggests that we may finally see a breakthrough in the search for a more flexible, modern framework for financial regulation.

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If you have questions or would like to explore chartering or licensing options, please reach out to the authors or your regular DWT attorney contact.