Global payment giant PayPal has already dipped its toes into the crypto realm with the launch of PYUSD stablecoin, crypto wallet features, and on-ramp and off-ramp features. The payment platform has now officially applied for a license to become a bank in the US under the official name, PayPal Bank.
Unlike adding products to the platforms as before, PayPal is trying to move into the US banking system after submitting applications to the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions.
In particular, PayPal is not simply aiming to become a bank, but a chartered industrial loan company eyeing small-business lending. It is important to note that the company has not yet launched the bank, but the licensing processes are underway.
As Alex Chriss, President and Chief Executive Officer of PayPal, noted, “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 Bank: From wallet to vault
PayPal has a big ambition to help small businesses with lending solutions through its PayPal Bank. Since 2013, the firm has already provided more than $30 billion in loans, and becoming a bank would allow it to offer a structured savings account protected by FDIC insurance.
Banks usually allow lending with customer deposits. With PayPal Bank, users can potentially enjoy cheaper and more stable funding deposits when compared to other commercial banks.
If PayPal gets a license to launch a bank, the money users keep in the bank account will be protected by FDIC insurance. This insurance is a crucial element because when a bank fails, the US government would reimburse customer deposits. In brief, FDIC insurance will make people feel safer about depositing their money in PayPal Bank.
Typically, fintech payment platforms do not hold user money; instead, they partner with traditional banks to get real bank accounts. So, users can deposit their money into bank accounts through fintech apps.
However, PayPal does not have to go through this long process of transferring money from the app to another bank or follow the bank’s strict rules and limits. Once PayPal receives a banking license or ILC, users can deposit their money directly into the in-house accounts.
PayPal’s entry into fintech industry
PayPal has already been exploring the fintech industry, with active participation since 2000. Considered as the first widely adopted online payment system, the payment platform now serves millions of users across the globe.
Here is a brief insight into key services PayPal has been providing in the fintech industry, including crypto.
Crypto initiatives– users can buy, sell, or hold cryptocurrencies directly on the PayPal app.
PYUSD stablecoin – a stablecoin that can be used for online shopping, merchant payments, micro-payments, and receiving payments for YouTube content creation in the US.
Lending for small businesses – PayPal Working Capital and PayPal Business Loans provide instant access to finance for Small and Medium-sized Enterprises.
AI-driven commerce – PayPal uses AI tools for payment integrations and personalizing user experiences.
Fastlane by PayPal – an accelerated guest checkout feature that allows users to pay without creating a PayPal account.
From fintech initiatives to cryptocurrency, and now to banking, PayPal has been rolling out interesting branded features that allow users to explore new means of dealing with funds. PayPal’s bank move is the biggest shift in its fintech journey, as it will pump financial services in-house with lending opportunities for customers.
Apart from the platform getting a license soon, what matters is what it chooses to build first, such as FDIC insurance for deposit accounts, faster payment settlements, small-business credit, and more.
