Published May 3, 2026

Mercury may become a bank, here's what I'm asking.

This week, the start-up Mercury received conditional approval by the OCC to become a bank. This news is part of an emerging trend of software companies no longer using a bank's license to meet regulatory demands and applying for their own charter.

In 2020, Varo was the first to achieve this. After them, a co-founder of Plaid left and bought Northern California National Bank. With that purchase, his software company Column was able to meet the regulatory standards of a bank. Sofi did, too. Revolut, in the UK, also received its full banking charter over there and just recently applied for one in the US as well. And now, Mercury may be next.

As an engineer who has worked in the world of money movement for the past 5 years, here are some questions I'm asking.

I remember where I was when I received an announcement from Wealthfront about their partnership with UMB. It wasn't an email about APY increasing or decreasing, so I didn't think much of it. I didn't know what it really meant because at that time I was only working in the Tier 2 of the "Bank Partnership" world.

I used to work at a company building a PayFac. Because we were just moving money on behalf of our merchants, the interactions with our banks were limited so I only had a couple negative experiences. Things that were hard to control, like US Bank's transfer API going down because of a storm or not having prior notice when SVB collapsed and locked our accounts.

Today, I work at a company that uses the license of multiple banks, and we cannot operate without them. This setup requires constant coordination. Partnering with a bank means that every decision concerning a customer needs to be approved. Even things as simple as the verbiage of a new text blast. I know now that there was more to the "xyz is a financial services platform, not a bank. Banking services provided by xyz's bank partner(s)." I know now what it's like to work in the Tier 0 "Bank Partnership" world.

Although the number of software companies becoming banks is rapidly increasing, every player in this ecosystem has a very important part to play. The neobanks put pressure on the incumbents to modernize, to provide innovative benefits to their customers, and to move a little faster. Monthly fees used to be table stakes, but software companies like Chime and Varo grew their audience on eradicating them. Then, the incumbents followed. Competitive APY started because all the neobanks were throwing it at us. The venture-backed companies put productive pressure on the large banks to catch up.

On the other hand, while we all can recall stories of a bank's API failing or an overly conservative approval process feeling like years, legacy banks have set the foundation for all of our wildest dreams to come true. Building robo-advising software for retail investing wouldn't have been available if not for the banking services of Wealthfront being backed by a bank's charter. Issuer processors that have made APIs ubiquitous, reliable, and delightful to use have legacy banks to thank.

We now have a flywheel where each player makes the others better. We make the banks better, and they back us so we can build better software. Claims that Revolut or Sofi will eat the big banks' lunch are hard to believe when big banks gave them their first forks.

The smaller players have advantages that will leave them whenever they scale into big banks. Rules like the Durbin agreement capping interchange fees on debit swipes for larger banks contribute to the profit margin of software companies, who don't need to follow those regulations. With under $10bn in assets, regulatory arbitrage allows them to take advantage of the uncapped interchange fees. Advantages like that, along with a healthy influx of venture money, allow a software company to test, define, and refine the moat of its business.

Additionally, many of the small players' strategies depend on using the big players' products. For example, since FDIC insurance coverage is limited to $250,000 per qualified customer account per banking institution, companies like Wealthfront expand coverage by cash sweeping at multiple banks. More partners equals more consumer protection. Those strategies show how these companies operate alongside big banks, not instead of them.

Mercury's founder prides his company on its ability to build a product that founders love. Wealthfront wants to make wealth building easy. Schwab "wants to make investing more affordable for all." Declarations aside, each institution has established its reputation on the playing field. When you think of JP Morgan's target client, it is not a first-time founder. And when you think of Wealthfront's target client, it's not someone already at retirement age. So, I'm wondering if these software companies even want to eat the same types of food the incumbents are eating.

Wasserman's Founder's Dilemma discusses the tension between money and control in businesses. It argues that a founder optimizing for money has to sacrifice control of the business, and vice versa. While I cannot predict the eventual outcome for neobanks, I can imagine that change is inevitable.

Today, Mercury is one of the first of the "banks" to ship its CLI so agents can make purchases on your behalf. Long term, will Mercury still be so innovative when it has grown out the bureaucracy inherent in being an incumbent? To continue providing value to your customers and make a profit, will these companies need to change? What stops them from becoming the conservative, slow incumbents 100 years from now? How do you sustain a reputation of speed while upholding strict, important, and tedious regulatory requirements over several decades?

Congratulations to Revolut, Column, and (soon) Mercury; may your speed be long-lived, and your software remain reliable. Congratulations to Capital One, Wells Fargo, and UMB; may your regulatory appetite protect us all, and your deposits grow tenfold.