- Key insight: Learn how an IFE charter enables fintechs to expand U.S. banking services through Puerto Rico.
- Expert quote: Klaros partner Michele Alt says an IFE avoids BHCA supervision, attracting fintechs seeking flexibility.
- Forward look: Anticipate heightened scrutiny around alternative-charter master-account approvals and FDIC access.
Source: Bullets generated by AI with editorial review
Canadian loan fintech Propel Holdings announced on Tuesday that it has received approval to launch its own bank in Puerto Rico.
The entity, which will be known as Propel Bank, will operate under an
"We have worked for several years to build the infrastructure needed to launch the bank," Propel Holdings CEO Clive Kinross told American Banker. "Setting up a bank subsidiary through an IFE license allows us to potentially expand into other banking products and services, pending regulatory approval, and into new jurisdictions. It also provides banking-grade regulation which brings peace of mind to our partners."
Propel Holdings, based in Toronto, Ontario, will not be a bank holding company, according to Kinross. This is standard for IFEs, as entities with these licenses are generally not considered "banks" under the
"As a fintech holding company, it is critical to keep our innovative mindset and not be limited by some of the regulatory restrictions that come with being a bank holding company," he said.
An IFE is an alternative charter offered in Puerto Rico for non-Puerto Rican companies seeking to enter the financial services space.
"IFEs by design must operate outside of Puerto Rico," Kinross said. "Built on the foundation of U.S. banking law and supported by Puerto Rico's regulatory infrastructure, an IFE draws on Puerto Rico's strategic position as a U.S. territory. This allows us to operate in the entirety of the U.S., subject to state and federal regulation. Given that the U.S. is our biggest market, Puerto Rico's strategic position as part of the U.S. banking system was a key factor in our decision."
Klaros Group partner Michele Alt told American Banker that the license permits a broad range of banking powers and does not subject the parent company to Bank Holding Company Act supervision by the Federal Reserve.
"A fintech would be looking at state alternative charters for a couple of reasons," Alt said. "During the Biden administration, interest in these alternative charters surged because fintechs were not being approved for more traditional bank charters at the federal level. Although that trend has reversed, it remains the case as a matter of federal law that a full service insured bank's parent company is subject to the Bank Holding Company Act."
For many fintechs, according to Alt, that kind of regulatory supervision is "unappealing at best and impossible at worst."
"To be a bank holding company, you must limit your activities to those that are permissible for banks or financial in nature, and many fintechs have business models that go beyond financial services," she said. "Any subsidiary bank must be a charter type that is exempt from the BHCA, and those include state alternative charters like the IFE and limited purpose charters like national trust banks."
Bank subsidiaries operating under an IFE license have the option to apply for, but not the guarantee of receiving, FDIC insurance and a Federal Reserve master account.
Alt noted that this can be risky for business models that would depend on that kind of access, as IFEs are often subject to additional scrutiny and the Fed has rejected master account applications from alternative charter institutions such as
Propel did not specify whether it would be applying for FDIC insurance or a Fed master account, but did note that potential expansions of its banking products and services would be "subject to regulatory approval."
Propel anticipates that its bank subsidiary will be in operation by early 2026, according to a company statement. Propel Bank is planning to offer existing and future bank partners with core consumer lending services, in line with Propel Holding's current credit offerings, while the bank awaits further regulatory approvals.
