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PayPal Holdings Inc. is embarking on another stage in its evolution with its application for a Utah-chartered industrial loan company to be called PayPal Bank. PayPal announced the move late Monday saying it submitted applications to the Federal Deposit Insurance Corp. and the Utah Deptarment of Financial Institutions.
A successful granting of the charter would enable PayPal to make its U.S. business-lending service more efficient and reduce its reliance on third parties. Currently, PayPal’s U.S. loans are provided by Salt Lake City-based WebBank. In March, PayPal said it had surpassed $30 billion in global loan originations to more than 420,000 business accounts globally since 2013.
“Under this charter, we will be able to offer merchant credit, merchant acquiring, and consumer and merchant savings products without relying on external bank partners whose business changes could disrupt services,” a PayPal spokesperson tells Digital Transactions News via email. “PayPal Bank will also seek direct membership with card networks to complement processing and settlement activities through existing banking relationships.” PayPal was founded in 1998 under what was called the aggregator model. It serves as the master merchant account, with individual business as sub-merchants. Today, the concept is called the payment-facilitator model.
“The goal of PayPal Bank is to enhance the financial services we provide, ensuring long-term stability and resilience, and expanding access to secure, flexible financial solutions,” the spokesperson says.
The leap to a bank charter is challenging and requires a real commitment from any fintech that wants to make it, says Thad Peterson, strategic advisor at Boston-based Datos Insights. “The benefits can be significant, but the complexity of applying for the charter and the level of overhead needed to implement and meet the compliance requirements of a bank can be daunting,” he says. “It’s important to look at the total cost of applying for a charter and implementation before embarking on that journey.”
PayPal Bank also intends to offer interest-bearing savings accounts, which would be eligible for FDIC insurance coverage. Mara McNeill, former president and chief executive of Toyota Financial Savings Bank, will be PayPal Bank’s president, PayPal says.
PayPal isn’t be the first payments company to seek this type of charter. Block Inc. , then known as Square Inc., received a Utah ILC charter in 2020. Other payments and payments-related companies with this type of charter include Merrick Bank, Comenity Capital Bank, and WebBank, according to a Utah Dept. of Financial Institutions Web page. It is unknown how long it may take this department and the FDIC to review the PayPal application, though PayPal says it will work closely with each throughout the process.
