Cutting Out the Middleman: Why Fintechs, Crypto Firms, and Payments Companies Are Seeking Their Own Bank Charters - Part 2

**Alan Kaplinsky** (0:07)
Welcome back to our two-part podcast series, Cutting Out the Middleman, The Surge in FinTech Applications to Chartered Banks, Industrial Banks and National Trust Companies. I'm Alan Kaplinsky, the founder and former chair for 25 years, and now Senior Counsel of the Consumer Financial Services Group at Ballard Spahr.
I'm very pleased to be your host today on our repurposing of the webinar.
Today, we'll be focused on part two. If you're just joining us, I encourage you before listening to part two of this podcast, you really should listen to part one, where we set the stage by exploring why so many FinTechs, lenders, and payments companies are seeking to become regulated entities, and we compare the different charter options available to them, and we focus on the use case for crypto native companies. In this second episode, we pick up with our expert panel to go deeper into the application process, capital requirements, regulatory expectations, and the practical realities of moving from application to launch. We'll also be focused on two additional use cases. First, for lenders, and in particular, companies engaged in the buy now, pay later business, or the earn wage access business.
And the reason why those lenders, non-bank lenders, are very interested in converting to national banks, and that is, of course, in order to cut out the middleman and create greater certainty with respect to their authority to export interest rates, allowed by the laws of the state where their bank is located, and ignore the usury laws in the borrower state. And all of that comes from the US Supreme Court opinion in Marquette National Bank vs. First of Omaha Service Corporation. And we'll also be discussing the use case for non-bank payments companies. So our discussion today will continue with Scott Coleman, partner of Ballard Spahr and Experian Bank Regulatory Council, Lee Reiners, Lecturing Fellow at Duke Financial Economics Center, Beau Hurtig, a former Associate General Counsel involved in organizing a National Trust Bank. Beau is now with, is of Council at Ballard Spahr. Adam Maarec, who advises a range of payments and non-bank clients, also at Ballard Spahr. And Joseph Schuster, notifies expertise in payments lending crypto and artificial intelligence. He is a partner at Ballard Spahr. So in the episode today, our panel will be examining the critical importance of submitting a well-developed business plan and preparing for regulator feedback, the phase capital raising process, and the major milestones you need to hit before opening for business, the realities of the regulatory approval timeline, and what I call the culture shock for non-banks and other FinTechs as they transition to regulated entities, namely national banks or national trust companies. How regulators approach risk, we'll talk about business plans that are required by the Comptroller, and the ongoing oversight of new depository institutions. Finally, we'll provide a lot of practical advice for assembling the right team and navigating a process that remains complex, resource-intensive and highly strategic. As I mentioned at the outset, we'll be very focused very early on today in the use case for lenders, buy now, pay later entities and earn wage access companies. Thank you for joining us for the second half of our program. Now, let's continue with part two of Cutting Out the Middleman. I'm going to turn now to Joseph.
Sorry, Joseph, I ended up putting you as the last speaker. Hope you don't mind. But I know you've got a lot to cover, but we're going to have to cover it in a short period of time. My first question for you is, are higher lending platforms increasingly interested in obtaining charters?

**Joseph Schuster** (5:50)
Yeah, it's a great question. I will say that I should say on our slide, we say lenders and we have parenthetical BNPL earned wage access. We do not think the earned wage access is a credit product or paying for BNPL providers. We just wanted to make sure that we talked about that as well. No, I'd get some emails about that otherwise. I would say that a lot of people have talked about a variation of this question, and one word I think comes up a lot, and that's control.
There's I'd say two pieces within that control. There's a business reason and there's a legal reason to this.
There's a question I think by the FinTechs or the partners of banks generally. I won't just say FinTechs because like I mentioned earlier, you have retailers, you have airlines, you have technology companies, all kinds of different entities that offer a co-grant credit card, or you have the traditional FinTech that are partnering with banks to offer credit to really the customers of that other company, that retailer, that airline, whatever it is.