Australia-listed Xero to acquire fintech Melio in over $2.5 billion deal
June 24 (Reuters) - Australia-listed Xero (XRO.AX), opens new tab said on Wednesday it would buy U.S.-headquartered fintech firm Melio for an upfront consideration of $2.5 billion.
The cash-and-stock deal would also see Melio receiving up to $500 million as part of deferrals and rollovers, laid out over the next three years.
The acquisition would allow Wellington-headquarted Xero to integrate accounting and payment solutions on a single platform.
Melio, which has offices in New York and Tel Aviv, provides digital bill payment solution for small business.
The deal would be funded through a placement of $1.2 billion, a $400 million unsecured credit facility, among others.
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Fintech Bank Formation and Acquisition Practical Law The Journal
Bank ownership can provide substantial benefits to fintech companies (as well as to other non-bank entities). A bank charter provides fintechs access to significantly cheaper funding than bank lines of credit, enhanced credibility through access to Federal Deposit Insurance Corporation (FDIC)-insured deposits, and exemption from state licensing and usury law requirements. Importantly, because banks are the only entities permitted to accept retail deposits, combining a bank with a fintech's other offerings enables a fintech to tailor its product and approach to customer needs to a greater degree than a third-party bank service provider generally allows. Under the Biden administration, it was difficult for fintechs to establish a bank. However, the current regulatory landscape under the second Trump administration may offer fintechs a fresh opportunity to pursue a bank charter. Understanding the types of bank charters available to fintech and non-bank companies, as well as the paths to bank ownership, are essential for successfully navigating entry into the regulated banking space. This article discusses: The types of bank charters and factors that fintechs should consider when determining what type of bank charter is appropriate. The benefits and drawbacks of de novo bank formation versus acquisition of an existing bank. The current legal and regulatory climate, and why it may be an opportune time for fintechs to consider bank ownership. Types of Bank Charters This article discusses full-service bank charters, which, for the purposes of this article, are typical FDIC-insured institutions that take a range of deposits (retail and commercial) and grant loans. This article highlights: Federal bank charters. State bank charters. Industrial loan companies (ILCs). Full-Service Bank Charter Standards and Requirements All FDIC-insured full-service banks are subject to the same core regulatory standards and requirements. For example, FDIC-insured banks are generally subject to uniform capital requirements, which require a bank to hold capital (a combination of cash, government-backed securities, and high-quality corporate debt) equal to between 8% and 12% of the bank's capital at the outset. FDIC-insured banks are also subject to rules limiting the bank's ability to engage in certain transactions with affiliates, such as buying assets from, or making loans to, an affiliate (generally including the fintech). Particularly at the federal level, bank regulators have increasingly engaged in interagency rulemaking designed to minimize differences in federal regulatory requirements among FDIC-insured banks. For example, all FDIC-insured banks are subject to the Volcker Rule, which limits the ability of an insured bank to be affiliated with: Unregistered funds, such as the types of funds maintained by private equity firms. Firms engaged in proprietary trading. (12 U.S.C. § 1851(a)(1), (2).) The Volcker Rule can raise particular concerns if a fintech seeking to establish a full-service bank is itself affiliated with a private equity firm or a full-service broker-dealer that engages in market-making activities. (For more on the Volcker Rule, see Summary of the Dodd-Frank Act: The Volcker Rule and Volcker Rule: Legal and Regulatory Tracker on Practical Law.) All FDIC-insured banks are subject to ongoing examination and oversight, typically occurring every 12 to 18 months, to ensure compliance with the rules of its primary regulator or regulators. These examinations can be rigorous, and a poor rating can lead to adverse ramifications, including limitations on organic and inorganic growth, and, in more serious cases, public enforcement orders and fines. (For more information, see Bank Supervision and Examinations on Practical Law.) Federal Bank Charters A federal bank charter is a national bank charter that is issued by the Office of the Comptroller of the Currency (OCC). It provides a bank the ability to offer a uniform set of deposit and lending products nationwide because the OCC, rather than individual states, establishes the standards for national banks (12 C.F.R. §§ 7.4007 and 7.4008). A national bank can be established in any state but enjoys broad preemption over state laws by virtue of its federal charter. For example, a national bank charter can establish loan and deposit production offices, or offices that provide both services, nationwide to solicit these core bank products without regard to state laws (12 C.F.R. §§ 7.1004, 7.1028, and 7.1029). The OCC also has sole visitorial power over national banks to conduct examinations, inspect books and records, supervise and regulate certain activities, and enforce compliance with applicable laws (12 C.F.R. § 7.4000). As a result, state officials are preempted from enforcing state licensing requirements or otherwise exercising these powers over federal banks. While states continue to challenge the extensive scope of this preemption, the US Supreme Court recently generally reaffirmed the broad preemption of state law long held by national banks. (12 U.S.C. § 25b; Cantero v. Bank of America, N.A., 602 U.S. 205 (2024); see Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024); for more information, see Federal Preemption Issues in Banking on Practical Law.) The uniform regulatory and oversight platform characteristic of a full-service national bank gives fintechs the ability to provide products and services in a uniform manner when offering services nationwide. For example, SoFi acquired a national bank to promote its nationwide lending business in 2022, and SmartBiz Loans acquired a national bank for the same purpose in March 2025. However, a federal charter also has certain disadvantages for fintechs relative to state banks. The OCC regulates national banks nationwide, including the largest banks in the country, such as JP Morgan Chase and Citibank, N.A., with the top five national banks holding approximately 43% of total US banking assets. As a result, there is the concern that the OCC may not be incentivized to charter smaller national banks or respond to their concerns on an ongoing basis. Another disadvantage is that federal examination fees, which are based on asset size (12 C.F.R. § 8.2), are generally higher than their state counterparts, in part because the state regulators share their examination responsibilities with the state bank's primary federal regulator (the Federal Reserve Board (FRB) or FDIC), which does not charge examination fees. (For more information, see US Banking Law: Overview on Practical Law.) If an FDIC-insured full-service national bank is owned by an entity, then that entity (and any entity that owns that entity) is deemed a bank holding company and regulated separately by the FRB under the federal Bank Holding Company Act of 1956 (BHCA). The BHCA generally precludes banks from being affiliated with institutions engaged in non-financial activities. A fintech engaged in lending, payments, money transmission, or similar activities itself would be deemed engaged in activities that are 'financial in nature,' and the activities therefore would be permissible under the BHCA (12 U.S.C. § 1843). However, if the fintech, or its parent or commonly owned entity, is engaged in commercial (such as real estate) or industrial activities, then the BHCA likely would preclude the ownership of an FDIC-insured national bank. If the BHCA applies and permits the fintech to be affiliated with an insured bank, then the top-tier holding company of the enterprise would be subject to separate FRB regulation, including capital and activity limitations. The FRB would examine the holding company on a regular basis, typically every 12 to 18 months. Similar to bank examinations, holding company examinations can be rigorous, and poor examination ratings adversely impact an organization's ability to pursue its objectives. (For more on bank holding companies, see Bank Holding Companies: Business Activities and Regulation on Practical Law.) State Bank Charters In contrast to the OCC, which is a single federal regulator of national banks across the country, each state has its own bank regulatory agency. Even in states with a significant financial services presence, like New York, the state regulator is believed to be generally more attentive and responsive to the issues of the banks it regulates. A fintech seeking to charter a bank may find a more welcoming reception from a state chartering authority than the OCC. Under the Trump administration's more flexible FDIC, it will be easier to obtain federal deposit insurance, so a fintech may find an easier path to a charter with an FDIC-insured state bank than with a national bank. Further, state bank regulators share ongoing oversight duties with either the FDIC (in the case of a state non-member bank) or the FRB (in the case of a state member bank), neither of which charges examination fees. As a result, the overall regulator examination and assessment fees is typically lower for a state bank than a national bank. All FDIC-insured banks, including state banks, are subject to significantly less interstate licensing and regulation than non-bank fintechs. The FDIC published an opinion providing that all FDIC-insured banks, including state banks, can 'export' the interest rate of their home state across the country, rather than being subject to the laws of each state where a borrower resides (FDIC, General Counsel's Opinion No. 11, Interest Charges by Interstate State Banks, 63 Fed. Reg. 27282 (May 18, 1998); for more information, see Interest Rate Issues for Bank Lenders and the Most Favored Lender Doctrine on Practical Law). Moreover, although state banks are not afforded the same level of federal preemption over state laws as national banks, as a practical matter, given the level of bank regulation, many states nonetheless exempt state banks from their licensing laws even without preemption. For example, California is recognized as imposing some of the more significant burdens on institutions engaging in financial services business with its citizens, and the California Financing Law (CFL) generally imposes licensing requirements to engage in the business of offering consumer and commercial loans (Cal. Fin. Code § 22100). However, the CFL also provides an express exemption from the entirety of the CFL (including its licensing requirements) for banks, trust companies, and savings and loan associations, whether existing inside or outside of California (Cal. Fin. Code § 22050(a)). As with a national bank, an entity owning an FDIC-insured full-service state bank will be a bank holding company under the BHCA, except in special circumstances. The FRB regulation and oversight of a state bank holding company is also similar to that described above for national bank holding companies. ILCs An ILC is a special type of FDIC-insured state-chartered bank that can be chartered in a few states, including Utah and Nevada, with Utah receiving the vast majority of recent charter filings. While an ILC is subject to the same capital requirements and federal and state regulations as any other insured state bank, an ILC is of particular interest to fintechs (and other non-bank-centric firms) because of the reduced regulatory requirements imposed on an ILC's parent and affiliates. Fintechs often seek to establish ILCs (rather than traditional national or state-chartered banks) because unlike the parent of a national bank, the parent of an ILC is not treated as a bank holding company under the BHCA, and therefore it and its other non-bank affiliates are not subject to the limitations imposed by the BHCA or FRB supervision and regulation. Because an ILC parent is not subject to the capital requirements of a bank holding company, it is not precluded from engaging in non-financial activities. The ILC can take deposits and make loans like any state bank, with one notable exception. To avail itself of the primary benefit of the ILC charter (that is, the general inapplicability of the BHCA to it and its affiliates), an ILC cannot take 'demand deposits' (the type of deposit account typically offered by full-service banks) if its assets exceed $100 million (an asset level exceeded by the vast majority of banks) (12 U.S.C. § 1841(c)(2)(H); 12 C.F.R. § 204.2(b)). ILCs are able to overcome this limitation through other types of deposit accounts that do not meet the regulatory definition of demand deposit but do afford customers the same practical capabilities. Specifically for retail customers, ILCs are able to offer negotiable order of withdrawal (NOW) accounts, which are a type of transaction account that does not meet the definition of demand deposit. NOW accounts cannot be offered to commercial customers, which historically limited the deposits that ILCs could receive from them (12 U.S.C. § 1832(a)). However, in 2020, the FRB removed the six transactions per month limit that it imposed on savings deposits, which includes money market deposit accounts (MMDAs) (another type of deposit account that does not meet the definition of demand deposit), that may be offered by ILCs to commercial customers. As a result, ILCs are able to offer MMDAs with transactional features to commercial customers, which provides them the same functionality that they would receive with a demand deposit account. Because there are no limits on loans, an ILC can provide the same services to customers as any other insured state bank. In recognition of the inapplicability of the BHCA, the FDIC has issued regulations imposing certain reporting requirements and other commitments on ILC parent companies as a condition of obtaining the charter, including that the parent company must serve as a source of financial strength to its FDIC-insured subsidiary bank (12 U.S.C. § 1841(c)(2)(H)(ii)). The Volcker Rule's prohibitions relating to covered funds and proprietary trading also apply to an ILC and its parent affiliates. Still, ILCs provide a unique type of entry into the banking sector for fintechs, offering the attributes of full-service banks while reducing regulatory burdens on affiliates, and are therefore commonly evaluated by fintechs considering a bank charter. For example, BMW and Pitney Bowes each own ILCs, and in March 2020, Square and Nelnet obtained ILC charters. Several other fintechs are also believed to be currently exploring ILC charters. (For more on ILCs, see Industrial Banks: Approval and Supervision on Practical Law.) Special Purpose Bank Charter Although this article focuses on full-service bank charters, some states offer special purpose charters that allow entities to offer a unique, but more limited, range of services, which fintech firms have utilized for certain purposes. For example, through its Department of Banking and Finance, Georgia offers a Merchant Acquirer Limited Purpose Bank (MALPB) charter. This charter allows non-bank companies to engage in 'merchant acquiring or settlement activities to directly access payment card networks,' functionally enabling non-bank companies to cut costs by cutting out a middleman. For example, the fintech Fiserv chartered an MALPB in September 2024 to process credit card transactions directly rather than having to use a sponsor to access the card networks. Wyoming also offers special purpose charters called Special Purpose Depository Institutions (SPDIs). SPDI banks focus mainly on digital or traditional assets and can receive deposits and conduct business incidental to banking. SPDIs are predominately engaged in custody, safekeeping, and asset-servicing activities. They cannot use customer deposits for lending. For example, Custodia Bank established an SPDI to custody crypto assets. Evidencing the limitations of the products and services they offer, neither Fiserv nor Custodia Bank has FDIC insurance, and neither is a bank holding company. Bank Formation Versus Acquisition In addition to selecting the appropriate charter, fintechs must consider whether to establish the bank de novo or acquire an existing bank. Each approach offers distinct advantages and challenges. De Novo Bank Formation There are several benefits to pursuing de novo bank formation rather than acquiring an already existing bank charter. De novo bank formation saves fintechs the time and expense of performing due diligence on a target bank and paying the premium price often associated with bank acquisitions. Additionally, a de novo bank can be tailored to the precise objectives of the fintech, whereas an acquisition could result in assets, operations, and personnel that are no longer strategic. Finally, at least with specialty charters such as ILCs, there are so few existing charters available that de novo bank formation is the only viable approach. For example, the last three companies that obtained ILC approval (Square, Nelnet, and Thrivent) all followed a de novo approach. (For more on de novo bank chartering, see Forming a De Novo Bank on Practical Law.) However, a significant downside of forming a de novo bank is having to build the bank 'from scratch,' which takes time, requires significant focus, and necessitates the hiring of personnel and infrastructure development, making this approach generally less certain of success than a bank acquisition. De novo bank formation requires filing with the OCC or a state regulator (depending on whether the bank will have a federal or state charter) and approval of FDIC deposit insurance as required under Section 5 of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. § 1815). If the full-service bank will have a parent (and the bank is not an ILC), the parent will have to apply to become a bank holding company with the FRB (see Federal Bank Charters above). Section 6 of the FDI Act lists factors that the FDIC considers in determining whether to approve an application for deposit insurance, providing entities with an indication of the work required to 'build a bank' (12 U.S.C. § 1816). These factors evaluate: The first three factors focus both on the fintech and the bank to be established, and require substantial pro formas and a well-supported, lengthy business plan covering the first three years of operations. Bank regulators prefer that the bank 'walks before it runs' and, therefore, generally want the bank's projected asset growth to be no more than 25% to 35% per year. The fourth factor, concerning the character and fitness of management, requires the finding of proven leadership, including successful full-service banking experience of the most senior executives. At least the bank president must be identified at the outset and maintained throughout the de novo process. Additionally, at least five directors, including some with banking-related experience, must be identified during the process. All of these individuals must undergo a formal screening process, including fingerprinting. The fifth factor, concerning the risk the institution would pose to the Deposit Insurance Fund, is the least defined and was the factor most often used by the FDIC under the Biden administration to justify not approving an application. Generally, to fulfill this factor, the bank needs to demonstrate that it could, if necessary, survive the debilitation of the fintech. The sixth factor, concerning the community's needs, requires the building of a plan to demonstrate that the bank will fulfill its obligations under the Community Reinvestment Act of 1977 (for more information, see Community Reinvestment Act Requirements for Banks on Practical Law). Under the Biden administration, the de novo process commonly took one year or more from the regulatory pre-meetings to approval (if approval was forthcoming). During the approval process, given the ongoing regulatory questions and the need to prepare for an eventual bank opening, the fintech needs to have ongoing focus on the chartering process and typically offers retainer arrangements to maintain management. While undergoing the de novo process, fintechs should understand that: The fact that the fintech is pursuing a bank charter, as well as parts of its application, will be public, but confidential business strategies generally can be kept private. There will be several rounds of regulatory inquiries and updates of pro formas. However, with a strong business plan (and fortitude), the fintech should be able to obtain a bank charter tailored to its purposes. Acquisition of an Existing Bank As opposed to building a bank from scratch by obtaining a bank charter, many non-bank institutions, such as SoFi and SmartBiz, decide to pursue the acquisition of an already existing full-service bank. As noted above, a bank acquisition does not allow the bank to be as tailored as a de novo bank formation, and the acquisition may necessitate asset sales or other adjustments. However, there are several benefits to this approach, particularly if the target bank is healthy. For example, an existing bank already has a business, management, operations, and a track record. There is also less concern that the bank's personnel will leave during the application process because the personnel are already working at an operating bank. Except for specialty charters such as ILCs, there are thousands of US banks available, allowing a fintech to find a target most suitable to its needs. Because the target bank already has deposit insurance, depending on the structure of the acquisition, the applications required could include a BHCA application (as with a de novo bank), a Bank Merger Act application (if the target establishes a shell bank to complete the acquisition), or a Change in Bank Control Act application (if individuals are acquiring the target). In each case, in addition to the financial strength and risk management of the fintech, the bank regulators will focus on the target bank. If the target bank is not healthy at the time of the application, either financially or from a risk management perspective, then the bank regulators will want to know how the fintech plans to return the bank to full health. Particularly given that federal law prohibits banks from sharing examination information with the fintech without bank regulator approval (which can be difficult to obtain), methodical and informed due diligence on the target bank is critical. Beyond the current status of the target bank, bank regulators will also focus on how the business of the bank will change by virtue of the application. A critical issue is the extent to which the acquirer wants to change the business and leadership of the bank. The greater the change to the bank, the more the regulators will view it as de novo from a review and information perspective, which can cause the acquisition process to become more drawn out. (For more on bank acquisitions, see Bank Mergers and Acquisitions on Practical Law.) The Regulatory Climate Over the past several years, the benefits of bank ownership have been rather illusory because it has been difficult for a fintech to obtain a bank charter due to various barriers to entry for both de novo bank formation and bank acquisition. Some of these barriers relate to the banking industry generally, but they were exacerbated by bank regulatory concerns about the fintech industry specifically. Between 2000 and 2008, over 1,000 banks were chartered (over 100 per year), while between 2010 and 2024, that number was reduced to an average of six banks per year. The Biden administration favored strict bank regulation, and a lengthy de novo bank application process deterred potential new entrants. The resistance to innovative de novo formation was also evidenced by the fact that the FDIC approved only one ILC charter (Thrivent Bank, which was a subsidiary of the $100 billion asset insurer Thrivent Financial for Lutherans) during the Biden administration. The bank M&A environment during the Biden administration also generally disfavored the acquisition of existing banks. By the fall of 2024, 507 bank mergers had been completed during the Biden administration, which was down 44% from Trump's first term. The median time for completion of a bank acquisition increased under the Biden administration, peaking at about six months in 2024. By comparison, the longest time for completion of a bank acquisition during the first Trump administration was under five months. These general constraints on de novo bank formations and existing bank acquisitions were even more keenly felt by fintechs. Federal bank regulators under Biden expressed significant skepticism about fintechs engaging with banks. For example, then-FDIC Chair Martin J. Gruenberg, discussing a proposed recordkeeping rule that would have imposed burdensome reporting and audit requirements on banks engaging with fintech providers, stated that 'FDIC staff have been monitoring issues associated with bank arrangements with third parties to deliver bank deposit products and services for some time. Recent events have underscored the significance, scale, and impact of the risks associated with some of these arrangements.' Further, then-Acting Comptroller, Michael J. Hsu, the leader of the OCC, specifically warned against the consequences of interplay between fintech and banking because non-bank institutions fall outside of the banking regulatory scheme. Hsu linked fintechs' entrance into FDIC-insured banking with under-regulation, suggesting that it could lead to familiar consequences, such as financial panic and poor banking. The skeptical attitude of federal banking agency leadership under the Biden administration served to make the already difficult environment for bank formation or acquisition even more difficult for fintechs. Fintech's ability to establish or acquire a bank is expected to improve dramatically given the current deregulatory shift from enhanced regulation to efforts to rescind or modify regulations as appropriate. Additionally, Trump has issued an Executive Order titled 'Reducing Anti-Competitive Regulatory Barriers,' which encourages entrance into new industries, including the banking sector, by eliminating unnecessary barriers for new market entrants. Trump's federal banking agency appointees similarly have been outspoken about their views on encouraging bank formation and permitting bank-fintech alliances. Acting FDIC Chair Travis Hill issued a statement indicating that the agency's focus in the coming months will include a more open-minded approach to innovation and technology adoption and '[e]ncourage more de novo activity so there is a healthy pipeline of new entrants in the banking sector.' Consistent with this commitment, in March 2025, the FDIC withdrew the Biden administration's recordkeeping proposal, as well as a Biden-era FDIC brokered deposit proposal that would have substantially increased the amount of deposits provided by fintechs to banks that are treated as 'brokered,' making it more difficult for banks to receive such deposits. Fintech's ability to establish or acquire a bank is expected to improve dramatically given the current deregulatory shift from enhanced regulation to efforts to rescind or modify regulations as appropriate. In an April 2025 speech, Acting FDIC Chair Hill noted that the agency is considering adjusting its bank application standards to encourage de novo bank formation and preserve the long-term viability of the community bank model. For example, certain applicants may be subject to adjustable standards, including with respect to up-front and ongoing capital expectations. Significantly, another potential improvement includes re-evaluation of how the FDIC processes deposit insurance applications from organizers proposing banks with new or innovative business models. Hill specifically recognized the benefits of bringing fintechs into the banking sphere, noting that a fintech with a large number of deposit accounts may present less risk to the Deposit Insurance Fund if it becomes a regulated bank, rather than placing deposits at multiple banks through complex partnership arrangements. Finally, in her first speech (on June 6, 2025) after becoming the Vice Chair for Supervision at the Federal Reserve, Governor Bowman discussed the need to streamline, and create greater transparency with respect to, de novo bank and bank merger applications. As for fintechs entering the banking sector through bank acquisitions, in May 2025, the FDIC approved the rescission of the Biden administration's more burdensome bank merger evaluation framework and returned to the less restrictive Bank Merger Statement of Policy that was previously in place. Looking Ahead The current regulatory climate presents fintechs with a rare and strategic moment to enter the banking industry. Given the tenor of the previous administration and the paucity of de novo charters in the past decade, it remains to be seen whether this regulatory approach will continue beyond the Trump administration. Therefore, a fintech considering enter the banking arena should explore its options now so a bank charter can be established before the end of the current presidential term. Several crypto firms have moved in 2025 to apply for bank charters and licensing, aiming to capitalize on the Trump administration's effort to integrate crypto currency into mainstream finance.
