The US has fewer digital bank challengers than the UK for these two reasons

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Many digital challenger banks, such as Atom, Starling, and Tandem, have emerged in the U.K. in the last few years, but this has yet to happen in the U.S.

American Banker cites two major reasons for this development, or lack thereof. First, it's much more difficult to get a charter in the U.S. than it is to get the equivalent banking license in the U.K. This is why some U.S. digital banks, such as Simple and Moven, have partnered with existing institutions to avoid the need to get their own charters. Second, it's much harder for startups to attract necessary investments to get off the ground without these charters.

The difficulty in obtaining these charters in the U.S. stems from two issues. At the moment, U.S. regulators are simply preoccupied with other priorities in the fintech space, such as online lending and cryptocurrencies, likely because these areas have been labeled as threats to financial stability.

Although, the Office of the Comptroller of the Currency (OCC) recently said that it would explore the possibility of extending modified charters to fintechs, which would likely have fewer conditions attached to them. For comparison, U.K. regulator FCA set up a division in January 2016 specifically for helping startup banks get regulated.

Furthermore, these charters are complicated and expensive. In order to get a U.S. charter, new banks must get approval from a national regulator such as the OCC or a state regulator, along with deposit insurance from the Federal Deposit Insurance Corporation (FDIC), which requires approval and significant resources. Deposit insurance covers customer deposits if the bank fails.

In the U.K., the authority that licenses banks exists completely within the FCA, and deposit insurance requirements are lower for startups as long as they do not take on too many customers.

Therefore, digital banks might want their own licenses to avoid depending on a partner because the license means that the bank can control the entirety of its service. But not all digital banks feel this way, as some in Europe (such as Loot and Number 26) happily rely on third parties.

Fintech regulations in the U.S. have been extremely restrictive thus far, but those in Europe have proven successful and allowed the region to become a hub of financial technology innovation. The U.S. would be wise to examine the policies in place across the pond and consider how to implement similar ones within its own borders.

The fintech industry is booming, with VC-backed fintech investment growing 106% to reach £10 billion ($13.8 billion) in 2015. But the new business models fintechs are bringing to market also need to be regulated, and the old models aren't sufficient. The approach regulators take will have a significant impact on how big fintech gets and how fast it gets there.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on fintech regulation that explains how regulators in Europe are successfully growing fintech innovation and how it's becoming a model for regulators around the world.

Here are some of the key takeaways from the report:

• The financial technology sector is booming, and Europe is a leading region for growth. VC-backed fintech companies in Europe raised £1 billion ($1.5 billion) in funding across 125 deals in 2015.
• With this boom in funding comes a need to regulate the nascent industry. There are a variety of approaches — active, passive, and restrictive — that regulators can take. The EU and the UK, in particular, have taken an active approach, in order to encourage growth.
• The regulation that will have the most impact on the European fintech market is the Second Directive on Payments Services, known as PSD2. It will force banks to open up their systems to fintechs. This will allow fintechs to act as intermediaries between banks and their customers.
• The UK regulator is actively promoting its approach to regulation as a model for other countries to follow. Some of its innovations are already being copied by other regulators around the world.

In full, the report:

• Examines the different approaches to fintech that regulators can take
• Explains the key EU laws that will affect the European financial services industry in the next two years and beyond
• Explores the potential impact of new regulations
• Details the workings of the initiative central to the UK regulator's approach to fintech
• Highlights what can be achieved when regulators, governments, and fintech companies work together

To get your copy of this invaluable guide, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of fintech regulation.