PayPal applied for approval to form PayPal Bank, which would enable the company to provide business lending solutions to small businesses in the U.S. without relying on third parties, offer interest-bearing savings accounts to customers with FDIC coverage, and seek direct membership with card networks to complement its processing and settlement activities.
The company has submitted applications to the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation to establish PayPal Bank, a proposed Utah-chartered industrial loan company.
PayPal CEO Alex Chriss said:
“Securing capital remains a significant hurdle for small businesses striving to grow and scale. Establishing PayPal Bank will strengthen our business and improve our efficiency, enabling us to better support small business growth and economic opportunities across the U.S.”
Mara McNeill has been selected to serve as PayPal Bank's President, coming to the table with over 25 years of financial services experience in banking, commercial lending, and private equity, most recently serving as President and CEO of Toyota Financial Savings Bank, and earlier in her career, worked as general counsel in auto finance for JPMorgan Chase.
Everyone wants to be a bank.
Klarna and Sezzle are reportedly also interested in securing a bank charter. Last week, five cryptocurrency platforms including Ripple and Circle received preliminary approval to establish national trust banks, though they won’t be able to take deposits, offer checking or savings accounts, or provide FDIC insurance. And then of course there's Walmart, which has pursued banking ambitions for years through multiple efforts, partnerships, and regulatory applications.
It's not been easy to become a bank, until recently.
What changed is the regulatory environment surrounding nontraditional bank charters. The Office of the Comptroller of the Currency has begun approving national trust bank charters for crypto and payments firms, allowing them to operate under federal banking supervision without taking insured deposits or offering checking and savings accounts.
At the same time, the FDIC has revived support for industrial loan company charters, which let commercial and payments firms offer lending and certain banking services while avoiding Federal Reserve oversight under the Bank Holding Company Act, lowering the barrier for fintechs and large brands to pursue bank-like status.
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.
As you saw earlier in my Stat of the Week, iIt'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.
Of course, there are risks with allowing fintech, payments, and crypto firms into the regulated banking — but they're risks I'm willing to take to knock Wells Fargo off its pedestal.