PayPal moves to establish US bank, expanding deposits and loans

PayPal, one of the earliest online payment systems, has applied to move deeper into core banking as it seeks to capitalise on more lenient regulatory requirements under the Trump administration.

While the San Jose-based company already provides small-business lending through products such as PayPal Working Capital, it does so primarily by partnering with banks and using third-party balance sheets.

Establishing PayPal Bank would allow the company to fund loans more directly, hold deposits and operate with greater control and efficiency, rather than relying as heavily on external banking partners.

"Securing capital remains a significant hurdle for small businesses striving to grow and scale," Alex Chriss, the president and CEO, said in a statement.

"Establishing PayPal Bank will strengthen our business and improve our efficiency, enabling us to better support small business growth and economic opportunities across the US," he continued.

PayPal, which already has a banking licence in Luxembourg, said it also expects to offer interest-bearing savings accounts to customers.

A state-backed bank

Unlike traditional banks, PayPal would not be required to register as a bank holding company under the Bank Holding Company Act, which would subject its entire corporate group to Federal Reserve supervision.

Industrial loan companies, or ILCs, are state-chartered banks permitted in a small number of states, including Utah. State-chartered banks are banks licensed by individual US states rather than by the federal government.

ILCs may be owned by non-bank parent companies, such as fintech firms or retailers, and are less stringent than full bank holding companies.

Companies often choose Utah because the state has long permitted industrial loan company charters. The state maintains a well-established regulatory framework for supervising them, and has experience overseeing banks owned by non-bank parent companies.

Other major companies with industrial loan company charters include Ally Bank, which originated from the financing arm of General Motors, and Toyota Financial Savings Bank, which provides deposit services linked to Toyota’s auto-financing business.

If the application is approved, Mara McNeill has been selected to serve as PayPal Bank's President. She has "over 25 years of financial services experience in banking, commercial lending, and private equity," according to the statement.

Before joining PayPal, she managed a similar transition to an ILC as president and CEO of Toyota Financial Savings Bank.