Brex withdraws applications for industrial bank

WASHINGTON — Brex has withdrawn its applications to form an industrial loan company and obtain federal deposit insurance for it. It's the latest fintech to be handed a setback in the pursuit of an industrial bank.

Brex, a financial services platform catering to startups, in February applied to the state of Utah for an ILC charter and to the Federal Deposit Insurance Corp. for deposit coverage. In a statement Friday, a spokesperson for the San Francisco company said that Brex had "voluntarily withdrawn its bank charter and federal deposit insurance applications. This will permit us to modify and strengthen our application and resubmit at a later date."

“We appreciate the support and thoughtful guidance from the Utah [Department of Financial Institutions] and FDIC,” the spokesperson added.

Brex is one of several fintechs to attempt an entry into the banking system by way of an ILC charter in recent years. The FDIC broke a decadelong freeze on new industrial banks in March 2020, when it granted deposit coverage to the payments firm Square and the student loan servicer Nelnet.

Before applying for an ILC, the fintech had offered financial services to its clients via bank partnerships, including UMB Financial, Radius Bancorp (now owned by LendingClub) and Bank of the West.

ILCs, also known as industrial banks, have been a raw nerve for the mainstream banking industry for years. Though few in number, ILCs are one of the last kinds of banking charter that can be held by a commercial entity rather than a bank holding company — which means that such banks can avoid direct oversight from the Federal Reserve.

The potential for a lighter regulatory burden has made the industrial bank an appealing route into the financial system for some fintechs, while commercial banks — particularly smaller community banks — have argued that ILCs blur the traditional separation between banking and commerce in the American economy.

Nearly every industrial bank applicant in recent memory has been forced to withdraw and refile applications at least once, including Nelnet and Square. Others, such as Rakuten Bank America, have had to resubmit their applications several times and continue to wait for approval.