. @mikulaja (who has a fantastic newsletter) nerd sniped me, then I had a full day at work and couldn't participate in the fun.

So after some NDAs, internal committee meetings and an *almost* finished employee handbook, I'm ready to share some thoughts. 1/ https://twitter.com/mikulaja/status/1315964547308683264

2/ First some background. If you want to do banking things in the US and want a charter you typically look for:

A) State chartered Bank (what Revolut is doing)
B) National Bank (federal charter, OCC regulated)
C) ILC -- state chartered, bespoke, will unpack

3/ Why not a credit union? Three of my followers might ask.

Credit unions need to have a defined geographic service area and/or some type of group. Boeing can claim its employees, but you can't claim the Internet or Gen Z-ers on Tik Tok as a service area of affinity group.

4/ Why wouldn't Revolut get an ILC?

ILC's are limited to a few states, and have even more limits on their business model.

The benefit of the ILC is you don't need a Fed-regulated holding company, and it can be owned by non-banks.

(Fed = Federal Reserve Board, not these guys)

5/ Ditching Fed oversight is a positive if you want to own something like a bank + have other commercial activities.

This used to be much more common in the U.S., but starting in the mid-1900s some folks at the Fed got it in their head that commerce and banking should never mix.

6/ The Fed staff then waged a multi-decade policy war to stamp out the ownership of banks by commercial enterprises.

You used to be able to be General Mills and own ONE bank. Then they closed the loophole.

7/ The Fed staff was coming for ILCs, but Utah Senator Orin Hatch had enough clout in Congress to fight them off.

Utah, California, Nevada and Colorado (I think, I'm doing this without research) all have ILC statutes and could hypothetically charter them today.

8/ The last Fed staffer holding anti-ILC torch may have been it's old GC, Scott Alvarez. I believe Scott recently left the Fed, so not sure if there still beats the war drums to snuff out ILCs.

Square and Nelnet (or was it Melmac bank?) show the FDIC is down to ILC again.

9/ We get it nerd man -- ILCs are hard to get. But then why is Revolut, chartering in California, not looking at one?

The answer is likely DDAs + time to market.

10/ Others have pointed out, ILCs with $100M+ in assets can't hold deposit accounts.

They can hold negotiable upon withdrawal (NOW) accounts. They're like checking accounts, but with different legalese. Also, they can't be opened for corporate entities.

11/ ILCs can hold time deposit accounts, but the ILC can't allow more than 6 withdrawals a month. For you non-nerds, this is basically a savings account.

12/ Interestingly, the Fed waived the withdrawal limit as part of COVID. So some industrious ILC (maybe Square!) could lobby to keep it.

Timed deposits can be held for corporates, including SMBs ;)

13/ Okay, so credit unions are out. So are ILCs due to their rarity and limits on corporate banking.

So what's the deal with state vs. federal charters?

14/ I think this is where the fun happens. If you want to be a bank, with full powers, you get to engage in a little regulator shopping and arbitrage. Your choices are:

15/

A) OCC chartered - overseen by regional staff, dealing with Washington staff who write all the rules. Peers are Citi ( recent monetary penalty for being poorly run), Wells (made-up customers and CEO who only hires "talented" people, also recently fined) . . . you get it.

16/

B) State chartered + FDIC regulated (for federal law)

C) State chartered + Fed regulated (for federal law)

17/ The difference between B and C is that state chartered banks can choose to become Fed system members. If they do, they have to hold a certain % of their capital as stock from their local reserve bank.

18/ But both B and C can get Fed accounts, ACH, Fedwire and other services from the Fed.

Very similar to Costco in California -- you don't have to be a member to get access and buy the wine.

(The payment services from the Fed is the wine)

19/ So back to Revolut -- they appear to have gotten advice that California state regulators + Fed oversight is the best path for them.

It's not the path I would have taken, but I do think it makes sense.

20/ Since moving here, I've had lots of interactions with the California financial regulator. It's a great agency, run by thoughtful people.

But I have heard they're a little permissive on the banking side. This probably benefits Revolut.

21/ Part of the issue is examiner pay. California has goofy rules that limit tax revenue and civil service pay. State examiners can quickly get experience then hop to higher-paying jobs on the Federal side and/or private sector.

Inexperienced folks don't spot the same things.

22/ The Fed vs. FDIC also makes sense to me. The Fed, specifically the SF Fed Bank, has invested heavily in understanding FinTech. They're the deepest experts in the country, and would (per rumor) oversee Revolut's US operations.

23/ I don't think FDIC vs. Fed is about who will be more permissive, but the FDIC is playing some catch up on their understanding of FinTech. The Corporation's new FinTech office helps, but doesn't level the playing field (IMO) with the SF Fed staff.

24/ But Matt! (you may be muttering into your phone) What about Tweet 19, where you said it isn't what you would have done? What would you have done?

25/ I would have picked Utah. And I would have picked state chartered + FDIC oversight.

26/ In my mind, Utah holds a couple of advantages.

--> Regulatory
--> Talent
--> Cost
--> Donovan Mitchell (okay, really the other intangibles, like it's a nice place to live with beautiful scenery)

27/ Regulatory --

The Utah DFI and local FDIC staff have decades of experience with FinTech partnerships. They have established views on what the bank needs to have oversight over the FinTech. This should translate well to a FinTech that wants to get a charter. Tough but fair.

28/ Talent -- Utah has tons of banks, which means it has tons of talented bankers, accountants/CFO types with background in filing bank regulatory reports, compliance professionals and an army of customer service folks.

29/ And the talent pool is building up to include talented engineers. Tech is exploding in Utah, and good talent is gaining experience along with it.

30/ Cost is another big one. Those bank presidents and CFO types -- at a tiny bank, they might make under $200k. In California, Revolut is probably going to have to pay $200K for the management a few rungs below their Bank President and CFO.

31/ Also cheaper than California:

--> Office space
--> Housing per SQ foot
--> Cost to raise a family (important as your workforce ages)
--> Taxes (important to some)

32/ Finally there's the intangibles. Yes, California and the SF/LA areas are awesome. But Utah is pretty great, too, with fantastic skiing, hiking, climbing. The Jazz are a fun ticket. Local restaurants are fun and tasty.

33/ Thanks for reading.

In FinTech and looking for your next thing? Make sure to check out @PrivacyHQ -- we're looking for great folks (especially engineers) and want to hear from you! NYC HQ, remote friendly and lots of great things in store.