In December I reported that PayPal applied for approval with the FDIC to establish PayPal Bank, as did Klarna, Ripple, Circle, and several other fintechs. Now you can add Affirm to that list.
On Friday, Affirm submitted applications to the FDIC and the Nevada Financial Institutions Division to create Affirm Bank.
CEO Max Levchin said in a statement:
“A banking subsidiary would strengthen and diversify Affirm’s platform, and help us bring honest financial products to more people. This is about expanding what we can do for consumers and merchants, and building for the long term.”
It’s also about not wanting to get left behind. If BNPL lenders become banks, they can take customer deposits and use that cheaper, insured funding alongside other debt, which can lower costs on interest-producing loans and help expand lending capacity. That’s a big advantage that Affirm doesn’t want its competitors to have without them.
Affirm currently works with six banks to issue cards, lend to consumers, and offer a savings account, including Cross River Bank, Celtic Bank, Lead Bank, Evolve Bank & Trust, Sutton Bank and Stride Bank, and the company told American Banker that it doesn’t plan to rid itself of partnerships completely. Rather, the proposed bank subsidiary would complement its other existing sponsor-bank partners.
Does the U.S. need more banks?
There are around 4,379 FDIC-insured banks and savings institutions in the U.S. today, down sharply from more than 14,000 in the mid-1980s after decades of consolidation. The industry has long been dominated by the same large incumbents, with only a handful of new banks chartered each year until a recent small uptick began in the early 2020s.
It’s estimated that the top four U.S. banks, JPMorgan Chase, Bank of America, Wells Fargo, and Citi, hold roughly 45% of all U.S. bank deposits, and the top 10 banks hold a 65% share.
In my opinion, the space is ripe for competition and innovation, which can only come from dishing out more banking charters. The banking industry is overdue for a competitive correction.
