Regulatory Approval and Acquisition
The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank of Chicago approved SmartBiz’s acquisition of Centrust Bank NA, a Northbrook, Illinois-based institution. This marks the first time a fintech has transitioned into a bank since 2021, during Trump’s first term. SmartBiz announced the approval in a statement on Monday.
A Rare Achievement for Fintechs
Gaining regulatory approval to become a bank has been a rare feat for fintech companies. Under President Joe Biden, no fintech has received such approval, and only a handful, including LendingClub Corp. and SoFi Technologies Inc., succeeded in obtaining charters before that. The process of becoming a bank—whether through acquiring an existing institution or applying for a new charter—is often time-consuming and costly. However, the benefits, such as access to low-cost funding through insured deposits and closer regulatory relationships, make it an attractive proposition.
Focus on Small Businesses
Evan Singer, CEO of SmartBiz, emphasized that the primary motivation behind becoming a bank is to better serve small businesses, which he believes are underserved by traditional banks.
“The main reason we’re doing this is ultimately to serve small businesses really well that aren’t being that well-served today by banks across the country,” Singer said in an interview. “There’s a huge opportunity to do that.”
SmartBiz, based in San Francisco, specializes in small-business lending, a sector that experienced significant growth during the COVID-19 pandemic. According to the U.S. Chamber of Commerce, 5.4 million new business applications were filed in the U.S. in 2021 alone.
Regulatory Support
Rodney Hood, the acting comptroller of the currency, expressed support for fintechs in the banking system, stating that a “safe, sound, and fair fintech business model has a place in today’s federal banking system.” A representative for the Federal Reserve did not immediately respond to requests for comment on the approval.
A Three-Year Journey
Singer revealed that SmartBiz began pursuing a bank acquisition about three years ago. The company filed a formal application with the OCC in October 2023 and with the Federal Reserve in February of last year. To navigate the complex regulatory process, SmartBiz enlisted the expertise of industry veterans, including Tim Bogan and Joe Schenone, who had previously assisted LendingClub in its bank acquisition. Schenone now serves as SmartBiz’s chief financial officer.
A Sign of Changing Times
Michele Alt, a partner at Klaros Group who advised SmartBiz through the process, suggested that more fintech approvals could follow under the Trump administration.
“After four years of the regulators having drawn up the gate over the moat,” she said, “the gate has been lowered again.”
Implications for the Fintech Industry
SmartBiz’s approval as a bank represents a significant development for the fintech industry, which has long sought to bridge the gap between traditional banking and innovative financial services. The move could pave the way for other fintech firms to pursue similar paths, potentially reshaping the financial services landscape.
SmartBiz’s transition into a bank underscores the growing influence of fintechs in the financial sector and highlights the potential for regulatory shifts under the Trump administration. By focusing on underserved small businesses and leveraging its expertise in lending, SmartBiz is poised to make a meaningful impact in the banking industry while setting a precedent for other fintech companies to follow.