Global digital payments leader PayPal has taken a significant step toward becoming a direct lender by applying to establish a Utah-chartered industrial loan company (ILC), to be named PayPal Bank. The company has filed applications with both the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC), signaling a strategic pivot to bring its extensive lending operations in-house.
From Partner to Principal
For years, PayPal has been a major player in small business lending, facilitating over $30 billion in capital to more than 420,000 small and medium-sized enterprises (SMEs). However, it has operated as an intermediary, partnering with third-party institutions like WebBank, Wells Fargo, and JPMorgan Chase to originate the loans.
Under this model, PayPal managed customer acquisition, underwriting, and relationship management, but had to share profits with its banking partners who provided the balance sheet. By establishing its own bank, PayPal aims to bypass these partners, allowing it to lend directly, accept deposits, and retain all profits from its financing activities.
The Strategic Utah Charter
The choice of a Utah-chartered ILC is a calculated one. ILCs offer a unique regulatory structure that allows non-bank parent companies, such as tech firms, to own a bank without being subject to the comprehensive Federal Reserve supervision required of traditional bank holding companies.
Utah has a well-established and favorable regulatory framework for ILCs, making it a popular destination for companies like Toyota and Ally Financial to house their banking arms. This move would provide PayPal with greater operational control and efficiency in its lending business. The company has named Mara McNeill, former President and CEO of Toyota Financial Savings Bank, to lead the new entity if approved.
Implications for MENA’s Fintech Scene
While PayPal’s application is focused on the US, the move sends powerful signals to the rapidly evolving fintech ecosystem in the MENA region. For regional buy-now-pay-later (BNPL) giants and payment service providers, PayPal’s evolution from a payments platform to a direct lender offers a potential blueprint for future growth.
This development validates the strategy of building a large user base and then layering on higher-margin financial services like credit and savings. It could inspire MENA’s leading fintechs to explore similar banking-as-a-service or direct charter routes to deepen their product offerings. Furthermore, as global players like PayPal consolidate their financial power, it increases competitive pressure on local and regional players to innovate and scale, potentially accelerating M&A activity and strategic partnerships across the Middle East.
About PayPal
PayPal is a global technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. Founded in 1998, the company operates a two-sided network that connects merchants and consumers, allowing them to make and receive payments in more than 200 markets and in over 100 currencies. Its services include PayPal, Venmo, Xoom, and Braintree.
Source: Waya
