PayPal Applies for US Industrial Banking Charter to Expand Lending
PayPal Holdings, Inc. has officially submitted applications to the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions to establish a Utah-chartered industrial loan company (ILC), to be named PayPal Bank. This strategic move aims to secure a U.S. banking charter, allowing the digital payments giant to significantly expand its financial services, particularly small business lending, and reduce its reliance on third-party bank partners. This application is the culmination of years of planning and marks a major step in PayPal’s evolution from a simple payment processor to a full-service financial platform.
Rationale for viewking an ILC Charter
Obtaining an ILC charter would grant PayPal many of the powers of a full commercial bank, allowing it to function more efficiently and control key aspects of its financial offerings. The primary stated goal is to bolster its small business lending capabilities. PayPal has already provided access to over $30 billion in loans and working capital to small businesses globally since 2013, but currently does so through partners like WebBank. The ILC charter would allow PayPal to originate loans directly, strengthening its business, improving capital efficiency, and giving it greater control over credit risk and funding costs. This move toward greater vertical integration is key to its long-term strategy, as a charter would allow PayPal to offer merchant credit, merchant acquiring, and consumer savings products without relying on external bank partners whose business changes could potentially disrupt PayPal’s services. If approved, PayPal Bank plans to offer interest-bearing savings accounts to customers, which would be eligible for FDIC insurance coverage. This allows PayPal to attract and hold customer deposits directly, securing a cheaper and more stable funding source than third-party arrangements. Finally, PayPal Bank would viewk direct membership with major U.S. card networks for processing and settlement activities, complementing existing banking relationships while offering more control over transaction speed and cost.
Structure and Regulatory Context
An ILC is a state-chartered, bank-like lender that can accept deposits and make loans. Crucially, it can often be owned by non-bank commercial firms, unlike a conventional commercial bank. PayPal chose Utah, which has historically been accommodating to ILC applications from financial technology (fintech) firms, with other major fintechs, including Block Inc. (formerly Square Inc.), having successfully obtained Utah ILC charters. PayPal has named Mara McNeill, a financial services veteran and former President and CEO of Toyota Financial Savings Bank, as the president of the proposed PayPal Bank, signaling a serious commitment to regulatory compliance and banking expertise. This application comes at a time when the regulatory environment, particularly under the current administration, is showing a renewed openness to fintech companies viewking to integrate into the regulated banking system, although ILCs remain a point of regulatory debate due to their commercial ownership structure.
