PayPal Holdings Inc., the global digital payments and financial services provider, has submitted applications to US regulators to establish a bank in a strategic effort to deepen its role in small business lending and broaden the range of financial services it offers.
The proposed institution, to be known as PayPal Bank, would be a Utah-chartered industrial bank, a unique type of depository institution licensed under state law and eligible for federal deposit insurance.
The applications were filed with the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC), the company said in a press release, marking a significant shift in PayPal’s business model as it seeks a PayPal bank charter to internalize key financial functions and reduce reliance on external banking partners.
“Securing capital remains a significant hurdle for small businesses striving to grow and scale,” said PayPal President and Chief Executive Officer Alex Chriss.
“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.”
If approved, PayPal Bank would operate as a Utah-chartered industrial bank, a category of financial institutions that can accept federally insured deposits and make commercial and consumer loans while being exempt from certain requirements of the Bank Holding Company Act.
Utah has long been a hub for such charters, which offer regulatory flexibility by allowing non-bank companies to own and control insured depository institutions.
Under the proposed structure, PayPal Bank would allow the company to offer business lending solutions more directly and efficiently to small and medium-sized enterprises in the United States, cutting out some of the third-party arrangements currently necessary.
The bank would also aim to provide interest-bearing savings accounts to its customers and seek direct membership in US payment card networks to enhance processing and settlement capabilities.
Customer deposits would be eligible for FDIC insurance if the regulatory review concludes in the company’s favour, bolstering consumer and business confidence in the institution’s safety and soundness.
PayPal has announced that Mara McNeill, a banking executive with more than 25 years of experience, will serve as President of PayPal Bank if the charter is granted.
McNeill previously led Toyota Financial Savings Bank as President and Chief Executive Officer, bringing significant commercial lending and financial services expertise to the proposed institution.
The filing comes as PayPal seeks to consolidate and expand its position in financial services beyond payment processing. Since 2013, the company has provided more than $30 billion in loans and working capital to over 420,000 business accounts globally, addressing a persistent gap in small business access to credit.
A bank charter would allow PayPal to leverage this track record while internalizing lending functions and capturing a larger share of the small business financial services market.
Industrial banks have a long history in Utah, where state law permits these institutions to operate with federal deposit insurance while maintaining certain exemptions from national banking rules.
These banks are subject to regulatory oversight by both state authorities and the FDIC, although they are not required to become bank holding companies under federal law.
However, PayPal’s application has drawn scrutiny from some industry groups.
The Independent Community Bankers of America (ICBA) has urged regulators to reject such applications, arguing that non-bank firms should not receive access to the federal safety net without being subject to full banking supervision comparable to other bank holding companies.
“The FDIC should deny ILC applications from PayPal and other Big Tech companies and not allow these nonbank firms to benefit from the federal safety net while avoiding prudential regulation and supervision at the holding company level,” ICBA President and CEO Rebeca Romero Rainey said.
“Any company that wishes to own a full-service bank should be subject to the same restrictions and supervision that apply to any other bank holding company.”
The ICBA’s position underscores broader debate about the role of fintech firms in the regulated banking system.
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