The payments group is applying to open an FDIC-insured “industrial bank” in Utah — a niche charter that could make small-business lending cheaper, savings stickier, and the payments plumbing more direct. It also reopens an old question Washington never fully settled: how far should big platforms be allowed to step into insured banking?
On December 15, 2025, PayPal quietly did something that tends to make regulators, bankers, and lobbyists sit up straighter than customers do: it filed to create “PayPal Bank,” a Utah-chartered industrial loan company (ILC), with an application to the Utah Department of Financial Institutions and the FDIC.
PayPal’s pitch is crisp. A bank would let it lend to U.S. small businesses more efficiently, reduce reliance on third parties, and (importantly) offer interest-bearing savings accounts whose deposits would be eligible for FDIC insurance. It also says the new entity would seek direct membership with U.S. card networks to complement processing and settlement — a technical line that matters if you care about who controls the pipes. If approved, the proposed bank would be led by Mara McNeill, a former CEO of Toyota Financial Savings Bank.
The move lands at an awkward moment for small companies. The Federal Reserve’s latest Small Business Credit Survey shows 37% of employer firms applied for a loan, line of credit, or merchant cash advance in the prior year — and the outcomes remain uneven: 41% got everything they asked for, 36% got only some, and 24% got nothing.
So the story is not “PayPal becomes a bank.” It is subtler — and more telling about where fintech is headed. PayPal is trying to become bank-adjacent in the way that changes unit economics, without necessarily becoming a traditional bank in the way consumers imagine.
The real issue: PayPal already lends. A charter changes who funds it — and who watches.
PayPal is not new to credit. Since 2013, it says it has provided access to more than $30bn in loans and working capital to over 420,000 business accounts worldwide.
In its most recent annual filing (for year-end 2024), PayPal reported a merchant loan portfolio (loans/advances plus interest and fees receivable) of $1.5bn outstanding, up from $1.2bn the year before. The company also carried $5.4bn of consumer loans and interest receivable (net of participation interests sold).
It is also a lender with a payments engine attached — which changes what underwriting can look like. PayPal’s Working Capital product, for instance, is repaid through a fixed percentage of the merchant’s future PayPal payment volume, with a structure designed so repayment generally occurs within 9–12 months, and with a minimum repayment requirement every 90 days.
That is the key strategic detail. When your “credit bureau” is partly your own transaction ledger, you can price and collect differently — sometimes faster, sometimes more aggressively, and sometimes in ways that make banks uneasy.
A charter does not magically create a better credit model. But it can change the funding stack, the regulatory perimeter, and the dependency map.
Why Utah — and why an industrial loan company, specifically?
Industrial banks are real banks in one sense and odd banks in another.
Utah’s regulator defines an industrial bank as a state-chartered depository institution that is eligible for FDIC insurance and generally subject to banking laws — but it is also exempted from the technical definition of a “bank” under the Bank Holding Company Act (BHCA). Utah says it has 15 banks operating with active industrial bank charters, and that their deposits are FDIC-insured.
The BHCA point is the prize. Under a typical bank structure, owning a bank pulls the parent company into a framework of consolidated supervision. Under the ILC structure, the bank is supervised, but the parent may not be overseen the same way a bank holding company would be — the traditional flashpoint in the “banking and commerce” debate. The FDIC itself notes that an ILC can be an insured bank whose controlling shareholder may be a nonfinancial corporation, and that the parent often is not subject to the additional “umbrella” oversight applied to bank holding companies.
ILCs also exist in a limited geography. The FDIC’s historical overview notes ILCs have been chartered in seven states (including Utah), not everywhere.
That scarcity is not just trivia. It is why a PayPal filing is a signal: the company is choosing a niche path designed for platforms that want some banking powers without becoming a bank holding company in the standard way.
There’s a reason Washington keeps circling back to this charter
If this all feels like a policy argument from another era, it is — and it never quite ended.
A Congressional Research Service report explains that the modern framework for ILCs was shaped by the Competitive Equality Banking Act of 1987, which exempted an ILC’s parent from the BHCA and created the avenue for commercial enterprises to own institutions offering FDIC-insured deposits. It also notes the mid-2000s backlash — including Walmart and Home Depot — that triggered two moratorium periods on FDIC insurance approvals for ILCs (2006–2008 and 2010–2013).
The FDIC has been explicit about that history in more recent rulemaking and requests for comment. In a July 2025 Federal Register notice, it recounts how Wal-Mart Bank’s deposit insurance application drew intense attention, followed by FDIC moratorium actions in 2006–2008, and then a Dodd-Frank moratorium from 2010–2013. It also underlines how rare “new” ILCs have been: since 2008, it says there have been three newly established industrial banks, including Square Financial Services and Nelnet (approved in March 2020), and Thrivent Bank (approved in June 2024, commencing operations in June 2025).
Put simply: this is a charter with a political memory.
And yet it keeps coming back — because it fits the business logic of modern platforms.
What PayPal gets if it wins approval
1) A cleaner story on “where your money sits” — and who insures it
PayPal has already spent years trying to persuade customers that holding more money inside the PayPal ecosystem is safe and worthwhile. But its own consumer-facing disclosures underline the core limitation: PayPal is not a bank.
Today, PayPal Savings is provided through Synchrony Bank, and PayPal’s site says plainly that money in PayPal Savings is held at Synchrony, and that FDIC insurance protects against the failure of Synchrony — not PayPal. It even advertises an APY (for example, 3.65% as of Nov. 18, 2025) to make saving feel tangible.
A PayPal-owned bank lets the company tell a simpler story: deposits are at PayPal Bank and eligible for FDIC insurance (subject to the usual rules). PayPal explicitly flags this as a goal for the proposed entity.
In a world where fintech “balances” can still confuse users, that messaging clarity is not cosmetic. It is product-market fit for trust.
2) More control over small-business lending economics
PayPal’s stated rationale is to improve efficiency and reduce reliance on third parties. That can mean several practical things:
- Origination mechanics: a bank can originate loans directly instead of structuring them through partners in ways that are often invisible to the borrower but very real to the finance team.
- Funding mix: a bank can potentially fund some lending with deposits instead of relying as heavily on whole-loan sales, partnerships, or other capital market structures.
PayPal already manages a loan book and has shown it can move credit risk around. In 2024, it reported selling $20.8bn of loans and interest receivable in connection with a forward-flow arrangement. That is not what a typical payments company does. It is what a lender with an industrialized funding machine does.
A charter does not replace that machine. It adds an additional lever — and, crucially, changes who can pull it.
3) A shot at reducing “sponsor dependence” in the payments plumbing
PayPal’s press release includes a line that most casual readers will skip: PayPal Bank would seek direct membership with U.S. card networks to complement its processing and settlement.
This is where banking becomes infrastructure.
Large payment platforms often rely on bank partners for certain network relationships and settlement mechanics. Direct membership can mean fewer intermediaries, potentially lower costs, and more resilience if partner relationships change. Even when the customer experience stays the same, the margin math can move.
If PayPal is serious about rebuilding parts of its economics — particularly in a market where payments margins are constantly under pressure — this is one of the few moves that can change the system rather than just the interface.
What PayPal gives up: heavier supervision — and the spotlight of an old fight
A bank charter is not a free upgrade. It is a trade.
On one side are the constraints that come with being inside the insured banking perimeter. On the other is the lingering policy fear: mixing banking and commerce.
The supervision question: can you regulate the bank without regulating the platform?
The FDIC’s historical review makes the core tension plain: with ILCs, the bank is supervised, but “the controlling company in many cases is not.” That is why critics focus on “consolidated supervision,” and why regulators have repeatedly explored ways to bind parent companies to capital and governance expectations.
The FDIC also emphasizes that there are safeguards that apply across insured institutions — limits on transactions with affiliates under Sections 23A/23B, rules on insider lending, capital requirements, and enforcement tools designed to prevent owners from extracting value from the bank in ways that put the deposit insurance fund at risk.
In practice, approval processes often come with conditions.
Square’s ILC episode is instructive. In March 2020, the FDIC approved deposit insurance for Square Financial Services, noting it would originate commercial loans to merchants using Square’s payments system. Even then, the process was framed around a formal seven-factor review — including risk to the Deposit Insurance Fund and the “character and fitness” of management.
PayPal will face the same basic question: is the bank a narrow lending utility with conservative governance — or a strategic wedge that pulls an entire platform closer to insured deposits?
The politics question: do we want platform-banks?
The FDIC itself has documented the public sensitivity. Its July 2025 Federal Register notice recounts the mid-2000s wave of attention and comments around retail companies and industrial banks, including the moratoria and concerns about commercial ownership.
From the platform’s perspective, the argument is simple: if you already provide payments and credit, a charter can mean better oversight, clearer consumer protections, and more efficient funding.
From the banking industry’s perspective, the worry is also simple: a major platform with insured deposits can become a different kind of competitive organism — one that bundles commerce, data, underwriting, and distribution at scale.
This is not a theoretical debate. It is an argument about where market power sits in the economy — and whether insured deposits should ever be a building block for a “super-app” balance sheet.
The bigger signal: fintech’s next era is about charters, not just code
For years, fintech’s story was “we can do banking better.” Lately, the story has shifted to “we should be banks (or close enough) to control the rails.”
PayPal’s scale makes that shift especially visible. In 2024, it processed $1.68tn in total payment volume, handled 26.3bn payment transactions, and ended the year with 434mn active accounts. Net revenues were $31.8bn.
At that size, relying on other people’s licenses starts to look less like “partnership” and more like “dependency.”
PayPal’s filing is best read as an attempt to redraw its own dependency graph — to bring one more critical function (banking) inside the perimeter of a platform that already behaves, in many ways, like a financial institution.
The thought-provoking part is not whether PayPal can operate safely as an ILC. It is what happens if the model normalizes: more platforms, more insured charters, more balance-sheet power attached to consumer-grade interfaces.
Regulators can approve or reject one application. The harder job is deciding what kind of financial system they are implicitly authorizing.
