According to the Wall Street Journal, the digital payment giant PayPal announced on Monday that an application had been submitted to the United States Department of Financial Institutions in Utah and to the United States Federal Deposit Insurance Corporation for the establishment of PayPal Bank. As an industrial loan company licensed in Utah, such entities may engage in loan operations, hold deposits under the Federal Deposit Insurance Corporation (FDIC) and can be held by non-financial institutions.
The application coincided with PayPal and other payment companies seeking to develop a sub-market in the banking sector. PayPal stated that the proposed bank would improve the efficiency of its small business lending operations and reduce reliance on third-party institutions. PayPal has provided over $30 billion in loans and operating funds to over 420,000 business accounts worldwide since 2013. Through the planned bank, PayPal also intends to provide interest-bearing savings accounts to its clients. The Bank will seek direct access to the United States Card Organization network to complement transaction processing and settlement through existing banking relationships. Marla McNeil, former CEO of Toyota Financial Savings Bank, has now been appointed Governor of PayPal Bank.
Payment companies, including first-in-first-in-first-out and encrypted money platforms, have recently been actively aligning themselves with the business model of banks and large financial institutions. Sezzle, a front-to-back purchasing platform based in Minneapolis, stated in November that the conversion to an industrial loan company was being studied to improve operational efficiency, saying that it would be simpler than becoming a bank holding company. Both Klarna and Affirm have introduced debit card products in recent years. Affirm is trying to compete more directly with credit card companies in the hope of obtaining more revenue through card payments. Klarna, which operates the Digital Bank in Europe, replicates the credit card company loyalty scheme and adds a preferential interest to its card.
Last week, five encrypted money platforms received initial approval for the establishment of a national trust bank. Companies such as Ripple and Circle have received conditional licences from the United States Monetary Supervisory Authority, but these trust banks will not be able to absorb deposits, provide cheque or savings account services or provide FDIC insurance.
