PayPal Pursues U.S. Bank Charter to Deepen Lending and Deposit Capabilities

Key Moments

Strategic Shift Toward Core Banking

PayPal, one of the earliest online payment platforms, is taking a major step toward traditional banking. Specifically, the company has applied to establish a U.S.-based bank under the name PayPal Bank.

The move marks a strategic shift toward core banking activities. At the same time, PayPal aims to benefit from what it described as a more favorable regulatory environment under the Trump administration.

Currently, the San Jose-based group provides credit to small businesses through products such as PayPal Working Capital. However, these loans are mostly issued with partner banks and rely on third-party balance sheets.

Bringing Lending and Deposits In-House

By launching PayPal Bank, the company plans to internalize more of its lending operations. As a result, PayPal would be able to fund loans directly instead of relying on external partners.

In addition, the proposed bank would allow PayPal to accept customer deposits and offer interest-bearing savings accounts. This structure could improve operational control while lowering funding costs over time.

“Securing capital remains a significant hurdle for small businesses striving to grow and scale,” PayPal President and CEO Alex Chriss said in a statement.

“Establishing PayPal Bank will strengthen our business and improve our efficiency,” Chriss added. “It will also help us better support small business growth and economic opportunity across the U.S.”

Notably, PayPal already operates under a banking license in Luxembourg. Therefore, management sees the U.S. expansion as a natural next step.

Industrial Loan Company Structure Explained

The proposed PayPal Bank would operate as an industrial loan company, or ILC. Unlike traditional banks, ILCs do not require the parent company to register as a bank holding company.

As a result, PayPal would avoid full Federal Reserve oversight of its entire corporate group. Instead, the bank would be regulated primarily at the state level.

ILCs are state-chartered institutions and can operate in only a limited number of states, including Utah. Importantly, this framework allows non-bank companies, such as fintech firms, to own banks.

Because of this structure, regulatory requirements are generally less restrictive than those applied to traditional bank holding companies.

Why Utah Is a Common Choice

Utah has become a preferred location for firms seeking ILC charters. The state has a long track record of authorizing these institutions.

Moreover, Utah maintains an experienced regulatory framework. It has also supervised banks owned by non-bank corporate parents for decades.

Peer Examples in the ILC Space

Several established financial institutions already operate under the ILC model. For example, Ally Bank originated from General Motors’ former financing arm.

Similarly, Toyota Financial Savings Bank focuses on deposit products tied to Toyota’s auto-financing operations.

Leadership Plan for PayPal Bank

Subject to regulatory approval, PayPal has selected Mara McNeill to serve as President of PayPal Bank. According to the company, she brings more than 25 years of experience in banking, commercial lending, and private equity.

Previously, McNeill led a similar transition to an ILC structure as president and CEO of Toyota Financial Savings Bank. As a result, she brings direct experience with the regulatory framework PayPal is now pursuing.