PayPal has applied to set up a bank in the US. Why would the company do that?

American PayPal Holdings has applied for a banking license in the United States. In recent months, Wall Street has been losing faith in the payment company's securities, but its own bank may become a growth driver: it will allow PayPal to attract funds for deposits and lend more actively to businesses.

PayPal has submitted applications to the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions for authorization to conduct banking activities, the company said in a statement. It is about creation of PayPal Bank in the format of Industrial Loan Company (ILC). Such structures act almost as full-fledged banks, not subject to the American Bank Holding Company Act (BHCA). This will allow PayPal to own a credit organization, avoiding the strict regulation of the U.S. Federal Reserve, applied to bank holding companies.

"The creation of PayPal Bank will strengthen our business and increase efficiency by allowing us to better support the growth of small businesses," PayPal CEO Alex Kriss said, as quoted in a press release. He noted that access to capital remains a significant barrier for small businesses. Since 2013, PayPal has provided companies with access to more than $30 billion in debt capital.

In addition, the license will allow the company to offer retail customers savings accounts with interest accrual as part of the expansion of the line of consumer financial products. In case of a positive decision of regulators, PayPal Bank will be headed by Mara McNeill, who previously headed the financial division of Toyota Motor.

PayPal already has a banking authorization in Luxembourg.

At the main trading on December 15 in New York shares of PayPal fell by 1.5% after the downgrade from investment company Baird from "actively buy" (Strong Buy) to "hold" (Hold). PayPal's announcement that it has filed an application to establish a bank in the U.S. turned quotes - additional trading on Nasdaq shares of the payment system ended in the plus by 0.8%.

According to FactSet, Wall Street analysts are losing faith in PayPal: for the last three months the consensus on the company's securities has changed from "above the market" (Overweight) to neutral (Hold). The "bulls" camp has thinned - the number of recommendations to buy (Buy and Overweight ratings) decreased from 21 to 16, and the majority of experts (26) now take a neutral position.

Despite the downgrade, the average target price of $78.66 per share implies a potential upside of nearly 30% to current quotes.

Fintech companies, including operators of BNPL services and crypto platforms, are increasingly adopting the functionality of traditional banks, according to The Wall Street Journal. For example, installment service Sezzle is considering becoming an ILC to improve business efficiency, while Klarna and Affirm have launched their own debit cards and loyalty programs. Last week, five cryptocurrency platforms, including Ripple and Circle, received preliminary approval from the U.S. regulator to create national trust banks, albeit with limited functionality, excluding deposit acceptance and state deposit insurance.

Companies' interest in obtaining banking licenses has increased dramatically since US President Donald Trump took office. During the presidency of his predecessor Joe Biden, applications were very Ma - let alone their consideration - due to the understanding that it would be difficult to get approval, Bloomberg notes.

This article was AI-translated and verified by a human editor