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Aite Group anticipates bank charter application surge

Retailers, telecoms and other non-bank companies seek national banker charters in an attempt to control their own destinies

Watch out, fintechs – you aren’t the only ones on the hunt for a national bank charter in 2021.

Retailers, telecoms, entertainment conglomerates and other non-bank companies are stepping up their interest in national bank charters amid a “new normal” in financial services, analysts at research firm Aite Group say.

“While we are seeing a change in the political landscape of America in 2021, there are few indicators today that this trend will be bucked by political pressures. Instead, it will fall upon all of us as an industry to adjust accordingly to a new normal of our own,” Francisco Alvarez-Evangelista, a research associate at Aite Group, said during a recent webinar hosted by the company.

Despite that new normal, the potential entry of retailers, telecoms and other non-fintech companies into the banking arena could renew battles like the one that retail giant Walmart fought, and eventually lost, when it tried to establish its own bank.

Meanwhile, Alvarez-Evangelista said the volume of applications for bank charters by fintechs will ramp up in 2021. “This allows them to control more of their own destiny,” he said, “and not necessarily have to rely on third-party banks or credit unions for support.”

However, some fintechs will remain on the bank-charter sidelines because they’re too small or they lack the cash to take on the expense of obtaining a charter, Alvarez-Evangelista said.

“Others may not want the regulatory pressures and oversight from a government entity,” he added, “and some may have lucrative deals with banks and credit union partners in the first place that override the need to [get a] charter.”

In 2020, about a dozen fintechs unveiled plans to secure a national bank charter or received conditional approval for a charter, according to Alvarez-Evangelista.

The anticipated surge in such charters comes as the debate intensifies over whether the federal Office of the Comptroller of the Currency (OCC) or the federal Consumer Financial Protection Bureau should be tasked with issuing national bank charters to fintechs. Currently, that responsibility rests with the OCC.

Talie Baker, a senior analyst at Aite Group, said she doesn’t expect peer-to-peer payment apps to hop on the bank-charter bandwagon unless regulators demand that they do. Nonetheless, P2P payment apps are increasingly offering neobank-like features, such as direct deposit, debit cards, lines of credit, point-of-sale payments and cross-border payments, she noted.

In the U.S., the two P2P payment giants are PayPal-owned Venmo and Zelle, which is controlled by Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo. Other P2P payment players include Apple Pay and Google Play.

“Just a few short years ago, everyone was trying to launch a P2P payment app and become the next Venmo or even a better Venmo. Today, we’re seeing that the landscape has narrowed pretty significantly to just a few key players,” Baker said.

Zelle has effectively winnowed the P2P payments market, according to Baker. Zelle, she said, is “a no-brainer” for traditional financial institutions that are striving to fend off competition from fintechs. Although seven banks own Zelle, more than 500 financial institutions offer the service.

In the third quarter of 2020, Zelle processed $84 billion in payments, up 71% compared with the same period in 2019, according to Aite Group. By comparison, Venmo processed $44 billion in payments during the third quarter of 2020, up 64% compared with the same period in 2019.

“Both of these apps are seeing tremendous growth,” Baker said, “and a lot of the growth has to do with COVID-19 and people being forced into digital channels.”

In 2019, market research company eMarketer predicted the U.S. market for P2P payments would approach $479 billion in 2021 and exceed $612 billion in 2023.

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