Brex withdraws ILC and deposit insurance claims

Dive brief:

  • Brex, a San Francisco-based fintech, has withdrawn applications to form an industrial loan company (ILC) and obtain deposit insurance, the company said on Monday.

  • Brex has voluntarily withdrawn its requests for a banking charter and federal deposit insurance “, a Brex spokesperson said in a statement. “This will allow us to modify and strengthen our application and resubmit it at a later date. We appreciate Utah’s support and expert advice. [Department of Financial Institutions] and the [Federal Deposit Insurance Corp.]. “

  • Brex, which is best known for providing banking services to start-ups, applied for the Utah charter in February and is among a growing number of non-banks and fintechs choosing the ILC route in order to secure banking licenses.

Dive overview:

Brex’s decision to withdraw its request and its plans to resubmit at a later date are not unusual. Rakuten, as well as payments provider Square and student loan manager Nelnet, have all taken similar action regarding their ILC applications.

FinTechs like Brex, which do not have a banking charter, rely on partnerships with traditional banks to provide their customers with FDIC-insured banking services and deposits.

Since its founding in 2017, Brex has partnered with banks such as Radius Bank and UMB Financial to offer small and medium-sized enterprises (SMEs) its range of products.

Brex Bank would expand its existing line of financial and business software products, offering FDIC-insured credit solutions and deposit products to SMEs, the the company said in February.

Fintech has recruited former Silicon Valley Bank executive Bruce Wallace as proposed CEO of Brex Bank, as well as Jean Perschon, former CFO of UBS Bank USA, as CFO of Brex Bank.

Since the FDIC has approved deposit insurance for Carré and Nelnet in March 2020, making the two companies the first to be chartered in 10 years, ILCs have become an increasingly popular route for other growth-oriented non-banks and fintechs looking to secure their own banking licenses .

A number of non-banking institutions, including General Motors Financial Corporation, investment company Edward jones, Japanese e-commerce giant Rakuten, and the non-profit have also applied for ILC charters since March 2020.

Interest in CALs, however, has sparked retreat of business groups and legislators who say the charter allows companies to provide banking services while avoiding Federal Reserve oversight.

Since ILCs are owned by commercial firms that are not regulated by a federal banking agency, banking business groups argue that the lack of oversight is a consumer safety issue.

“Any business that wishes to own a full-service bank should be subject to the same restrictions and oversight that apply to any other bank holding company,” said Rebeca Romero Rainey, President and CEO of Independent Community Bankers of America. in a report in 2019, in response to a bill that would prevent non-financial companies from setting up ILCs.

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