Dive Brief:

• PayPal Holdings said Monday that it has applied with the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions to establish a Utah-chartered industrial loan company, according to a press release issued by the company.
• The digital payments pioneer said in the release that it’s seeking the charter so that it can expand financial services it offers to U.S. small businesses that proposed PayPal Bank brand. The company has already extended $30 billion in loans and working capital to small businesses, but this move would let it knock third parties out of some arrangements.
• “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.,” PayPal CEO Alex Chriss said in the release.

Dive Insight:

San Jose, California-based PayPal’s plan to establish a bank comes as fintech companies increasingly look to secure capabilities that allow them to act like banks. As the payments and fintech industries mushroom, they’re eager to expand services in ways that are less constrained by traditional banking frameworks.

PayPal has already been offering bank services to some 420,000 small businesses worldwide since 2013, according to the release, but it’s had to rely on banks and other partners for assistance. The new charter would let it pursue additional opportunities and bolster its business with new revenue streams.

The company said it has tapped Mara McNeill to be the bank’s president. She was formerly the CEO of Toyota Financial Savings Bank, which provides financial services for its dealers and their employees. She has been a vice president at PayPal since September, according to her LinkedIn profile, which shows her as the president of SkyeLynx before then.

Aside from lending to small businesses, PayPal said it could offer interest-bearing savings accounts. The company would also seek direct connections in the U.S. to card networks for processing and settlement activities. PayPal was clear in saying that those new ties to networks would “complement” its existing banking ties.

If PayPal were approved for the bank charter, its bank would be able to access FDIC insurance for its customer deposits, the release said.

It’s not the only payments company considering applying for a bank charter, and some payments players already act as banks. Buy now, pay later company Klarna Group operates as a digital bank in Europe, offering financial services.

Minneapolis-based buy now, pay later company Sezzle is also interested in securing a bank charter, as the regulatory outlook changes. The potential for onerous state oversight is one reason Sezzle is exploring an industrial loan charter, said the company’s CEO, Charlie Youakim. 

Obtaining the charter would put Sezzle “one step further away from the fight” over state-level BNPL regulation, Youakim said in a November interview. Sezzle may apply for the charter in Utah next year, he said.