In 2021, California regulators required Chime to stop marketing itself in a manner that implied it was a bank. The company did not hold a banking charter, and California law, like most state laws, prohibits an unlicensed financial company from using the word "bank" in its name or advertising.

The settlement required Chime to stop using the domain chimebank.com unless it became licensed as a bank and to update customer-facing disclosures to make clear that Chime itself was not a bank, according to the California Department of Financial Protection and Innovation.

The distinction matters because it defines the legal boundary between offering banking services and being a bank. In the United States, a company can build and distribute a product that looks and functions like a bank account without holding a bank charter.

What it cannot do is call itself a bank, represent federal deposit insurance it does not directly hold, or take independent custody of customer funds without triggering a separate set of licensing requirements.

The rules governing this space have grown more complex as the market has grown. The bankruptcy of middleware provider Synapse Financial Technologies in April 2024 locked more than 100,000 customers out of $265 million in deposits they believed were federally insured.

A year later, crypto-native firms began pursuing federal trust charters in numbers not seen in decades. This forced regulators to define what a banking license actually authorizes and who qualifies to hold one.

Navigating US Neobank Formation


  • Three structural models exist for launching a US neobank: a full OCC national bank charter, a state charter with FDIC deposit insurance, and a Banking-as-a-Service (BaaS) partnership with a licensed sponsor bank.
  • Federal law and most state laws prohibit unlicensed companies from using the word 'bank' in their name or advertising; the 2021 Chime enforcement case established this standard for consumer fintechs.
  • The BaaS model exempts neobanks from state money transmitter licenses but requires the sponsor bank to hold all customer funds, with no independent custody permitted by the neobank.
  • The April 2024 Synapse bankruptcy locked more than 100,000 customers out of $265 million in deposits and exposed structural gaps in how BaaS middleware arrangements manage customer funds.
  • The OCC conditionally approved five digital-asset-related national trust bank applications in December 2025, including two de novo charters and three conversions from state trust companies.
  • The GENIUS Act, signed in July 2025, established a federal regulatory framework for payment stablecoins and a limited-purpose charter path for nonbank stablecoin issuers.

Three Structural Models


Launching a digital bank in the United States requires choosing among three regulatory structures. The first is a full bank charter from the Office of the Comptroller of the Currency (OCC), the federal agency responsible for chartering and supervising national banks.

A national bank charter requires $20 million or more in initial capital, a comprehensive compliance infrastructure, and an application process that typically spans 15 months or longer. Varo became the first US consumer fintech to receive a national bank charter in 2020, after a process that began with its OCC application in 2017 and cost the company nearly $100 million, according to Banking Dive.

The second path is a state charter combined with Federal Deposit Insurance Corporation (FDIC) deposit insurance. State-chartered banks face the same core federal compliance requirements as nationally chartered banks but are examined by state regulators rather than the OCC, with capital thresholds and approval timelines that vary by jurisdiction.

A state-chartered institution operating nationally must manage compliance obligations in each state where it accepts deposits.

The third structure, and the most common entry point for digital banking startups, is the Banking-as-a-Service (BaaS) model. A BaaS-based neobank partners with an FDIC-insured sponsor bank that holds customer deposits and processes payments on the neobank's behalf.

The neobank operates as a program manager, building the customer-facing product on top of the sponsor bank's regulatory infrastructure. Chime, the largest US neobank by customer count, uses this structure through partnerships with The Bancorp Bank and Stride Bank, according to InnReg.

The BaaS model exempts most neobanks from state money transmitter licenses because the sponsor bank controls the funds and holds the regulated status. That exemption depends on a single condition: the neobank cannot have independent custody or control over customer funds.

Once a company holds funds on its own, it may be functioning as a money transmitter. State licensing obligations, surety bond requirements, examination costs, and renewal fees vary by jurisdiction. A company operating nationally outside the BaaS exemption must evaluate licensing exposure state by state, usually through the Nationwide Multistate Licensing System and individual state regulators.

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Federal Compliance Obligations


Regardless of structural model, federal law establishes a consistent compliance baseline. The Bank Secrecy Act requires all banks and bank-adjacent entities to maintain anti-money laundering (AML) programs and report suspicious transactions to federal authorities.

The USA PATRIOT Act mandates a Customer Identification Program (CIP) during account onboarding, requiring verification of each customer's identity before the account is active. The Truth in Lending Act requires specific disclosures about the cost and terms of any credit products offered.

The US regulatory environment operates across three tiers, without the single-agency equivalent found in most comparable markets. Federal supervision through the OCC, FDIC, and Federal Reserve governs the core banking relationship.

The Consumer Financial Protection Bureau (CFPB), operating under the Dodd-Frank Wall Street Reform and Consumer Protection Act, enforces consumer protection rules including Regulation E on electronic payments and Regulation DD on truth in savings. It can also examine nonbank entities posing consumer risk.

State banking authorities add a third layer of state-specific data privacy laws and licensing frameworks that vary significantly across jurisdictions, as detailed by Global Legal Insights.

The cost of operating within this structure reflects its depth. Startup costs for a US neobank range from $2 million to $10 million depending on licensing model, technology investment, and customer acquisition. Compliance typically represents 15 to 25 percent of total operating expenses once the company is operational.

For companies pursuing a full OCC charter, general startup-cost estimates should be treated as lower bounds. Post-approval examination cycles, capital maintenance obligations, board governance, audit, and regulatory reporting add continuing costs beyond the initial licensing process.

Regulatory pressure on sponsor bank relationships intensified in 2024. On July 25, the OCC, FDIC, and Federal Reserve published a joint statement warning institutions about risks in third-party arrangements related to deposit products and services.

The statement emphasized that a bank's use of a third party does not transfer the bank's legal and risk-management obligations. Enforcement actions against Evolve Bank and Trust and Lineage Financial Network that year required both institutions to revise their fintech partnership programs.

In Lineage's case, it had to offboard some fintech partners entirely, reducing the available pool of BaaS options for new entrants, per American Banker.

Naming, Advertising, and What You Can Claim


Federal law under 18 U.S.C. § 709 prohibits financial services entities from using the words "national," "Federal," "United States," "reserve," or "Deposit Insurance" in a business name or advertising without legal authorization. These terms are reserved for entities operating under federal charter or federal supervision.

Using them without authorization constitutes a federal criminal offense under Title 18 of the United States Code.

State laws extend the restriction to the word "bank" itself. Most states prohibit any unlicensed company from using the word in its corporate name, marketing materials, or customer-facing communications. The Chime case established that offering banking services through a partner institution does not confer the right to describe the company as a bank.

Companies in the financial services sector have adopted alternative spellings such as "banq" and "banc" to navigate state naming requirements. Both terms satisfy legal requirements for unlicensed entities while remaining phonetically equivalent to the restricted word.

The term "neobank" carries no legal definition in US statute or federal regulation. A company can use it in marketing without holding any license. The practical implication is that product features can be described in full, but any representation implying direct deposit insurance coverage, federal charter status, or the full rights of a licensed institution creates regulatory exposure.

FDIC deposit insurance disclosure is a specific and recurring compliance issue for BaaS-based operations. When a customer deposits funds through a neobank operating through a sponsor bank, FDIC coverage applies as "pass-through" insurance: it covers the customer's beneficial interest in funds held at the licensed partner bank, not the neobank itself.

This coverage applies only if the underlying bank fails and the sponsor bank has accurately maintained records identifying each beneficial owner. The FDIC issued a consumer alert in June 2024 clarifying the limits of this coverage.

Legal analysts quoted by American Banker noted that consumers have no practical way to verify whether a fintech or middleware provider is maintaining those records accurately.

The April 2024 Synapse Financial Technologies bankruptcy illustrated the consequences of that gap at scale. Synapse served as a middleware layer connecting approximately 100 fintech companies to FDIC-insured partner banks.

When Synapse filed for Chapter 11, discrepancies between its internal ledger and the partner banks' records left between $65 million and $95 million of customer funds unaccounted for, according to the Yale Journal of International Affairs. More than 100,000 customers were locked out of their accounts.

The FDIC responded in September 2024 with a proposed recordkeeping rule requiring insured depository institutions to maintain more detailed records for certain custodial deposit accounts with transactional features. The proposal was published in the Federal Register in October.

For digital asset firms, the Synapse collapse made sponsor-bank dependence look less like a temporary workaround and more like a structural constraint.

The Blockchain Sector and the Charter Race


For companies in blockchain and digital assets, the structural constraints of the BaaS model carry specific weight. A crypto exchange or stablecoin issuer operating through a sponsor bank faces the same ledger-reconciliation and custody risks the Synapse case illustrated.

They also face the dependency risk of a partner that can exit the relationship under regulatory pressure. Companies operating digital asset services across multiple US states also face a patchwork of state money transmitter licenses absent a federal preemption mechanism.

These factors have driven a growing number of blockchain-adjacent firms to pursue federal banking charters directly.

The OCC issues national trust bank charters under the authority of the National Bank Act. A national trust bank is narrower than a full commercial bank: it does not hold insured deposits or engage in conventional commercial lending.

What it provides is a single federal regulator and federal preemption of state money transmitter licensing laws. For a company operating stablecoin issuance or digital asset custody across multiple states, that preemption removes a significant ongoing compliance burden and eliminates the cost of maintaining licenses state by state.

On December 12, 2025, the OCC conditionally approved five national trust bank charter applications tied to digital asset firms: First National Digital Currency Bank, Ripple National Trust Bank, BitGo Bank & Trust, Fidelity Digital Assets, and Paxos Trust Company. The OCC approvals covered two de novo national trust bank charters and three conversions from state trust companies to national trust banks.

The approvals came amid a broader wave of digital asset licensing activity at the OCC. By early 2026, Zerohash, Crypto.com, Bridge, Coinbase, and Nubank were among the firms with digital asset licensing applications or related charter activity pending, according to the OCC's digital asset licensing application materials and industry reporting by PYMNTS.

The OCC also issued interpretive guidance in 2025 expanding the range of digital asset activities permissible for national banks. Interpretive Letter 1184 confirmed that national banks may purchase and sell digital assets held in custody at the customer's direction.

Interpretive Letter 1186 confirmed that national banks may pay blockchain network fees, hold digital assets as principal in amounts required for permissible activities, and outsource custody and execution to qualified third parties under standard risk management frameworks, per legal analysis published by Sidley Austin.

The Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), signed into law on July 18, 2025, established the first federal regulatory framework for payment stablecoins in the United States. The legislation creates a path for nonbank financial firms to obtain a limited federal charter for stablecoin issuance.

It also allows state-regulated issuers to operate under state frameworks up to a defined asset threshold, and directs Treasury, FinCEN, and OFAC to issue AML and sanctions compliance rules for permitted issuers. In April 2026, Treasury and FinCEN issued a proposed joint rule implementing those requirements, per the US Department of the Treasury.

The GENIUS Act prohibits payment stablecoin issuers from paying interest or yield to token holders. Citigroup projected in 2025 that stablecoin issuance could reach $1.9 trillion in its base case and $4.0 trillion in its bull case by 2030.

Traditional banks have argued for strict enforcement of the yield prohibition on the grounds that yield-bearing stablecoins would benefit from a lighter regulatory burden than insured deposit-taking banks face and could accelerate deposit migration out of the banking sector.

The debate over the yield restriction has reportedly complicated related digital asset market structure legislation in the Senate.

Conditional charter approval from the OCC does not constitute full operational status. Anchorage Digital Bank remains the only crypto-native firm to have completed the path from OCC conditional approval to fully operational national trust bank.

Every other firm in the current wave is still in process, subject to post-approval capital standards, compliance reviews, and ongoing examination requirements. The OCC has stated a target of processing complete applications within 120 days, but the conditions attached to conditional approval can extend the timeline to full operation significantly.

A structural gap also exists between federal charter status and access to Federal Reserve payment infrastructure. A national trust bank charter confers a single federal regulator and statutory legitimacy. It does not automatically grant access to Federal Reserve payment rails, the infrastructure through which dollar transactions clear and settle in the US financial system.

Federal Reserve Governor Christopher Waller stated publicly in October 2025 that Fed staff were exploring a limited "payment account," sometimes described as a "skinny" master account, that could provide access to Federal Reserve payment rails without the full privileges of a conventional master account. However, as of early 2026 no formal framework had been finalized, per analysis by Brookings. Newly chartered firms may still require correspondent relationships with traditional institutions to complete transactions.

The legal foundation of the OCC's current approach faces organized institutional challenge. The Conference of State Banking Supervisors characterized the resulting charter structure as a "Franken-charter," arguing that the OCC is combining legal authorities not designed to work together.

They argue this combination may not withstand judicial review. The American Bankers Association and the Independent Community Bankers of America have raised separate objections, and the Bank Policy Institute has reportedly explored litigation against the OCC over its approvals, according to FinTech Weekly.

These organizations have sustained congressional relationships and institutional resources that most charter applicants do not.

The 2021 Chime enforcement case and the 2024 Synapse bankruptcy both illustrate the same structural reality from different angles: the BaaS model distributes liability across multiple parties. When the structure fails, the gap between implied consumer protection and actual legal accountability becomes concrete.

The charter race of 2025 and 2026 reflects an attempt by well-capitalized firms to move out of that distributed structure and own their regulatory relationships directly.

Whether the OCC's expanded interpretation of trust bank charter authority survives legal challenge remains unsettled. Whether newly chartered firms will gain meaningful Federal Reserve payment rail access before that challenge is resolved is equally open.

For companies entering this space, the licensing structure is a strategic positioning decision as much as a compliance question. The current legal and regulatory contests will determine the architecture of US digital finance for the next decade.

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Michael LeSane
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