PayPal Seeks Banking Charter to Grow Small Business Lending Through PayPal Bank
PayPal is willing to expand the ways in which it offers financial services drastically by filing for a bank charter in the United States. The firm took steps towards this new entity called PayPal Bank by lodging its applications with the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions. To make loans to small businesses more straightforward and cut off the dependence on other banks, PayPal would be able to exercise this charter if it got the green light.
PayPal working capital is one of the many products through which PayPal has facilitated access to credit and financing by providing offered loans to small and medium-sized businesses. Over the last ten years, the company has loaned more than 30 billion dollars to business customers worldwide.
The CEO of PayPal, Alex Chriss, stated that small businesses’ lack of access to capital is still the biggest problem of their growth. The company wants to make it easier for businesses to get capital and provide more entrepreneurs with the money they need to expand their businesses, hire employees, and manage cash flow by forming PayPal Bank.
One of the most important reasons why becoming a bank is advantageous to PayPal is the fact that it can provide some services that are hard to achieve under the current model. Clients may open interest-bearing savings accounts and become payment networks members directly. Moreover, it will be an assurance for businesses that deposit money with PayPal Bank as these deposits will be covered by FDIC insurance, so they will be safe and sound.
McNeill was handpicked by PayPal to be in charge of the bank they plan to open. McNeill has a rich background in banking and commercial lending, among which she has been a head of Toyota Financial Savings Bank. With her experience, she is well-positioned to facilitate the startup and growth of the loan department and handle regulations if they grant a banking charter.
This step by PayPal is in line with the trend that is broadly visible within fintech companies. Fintech companies and non-bank lenders are looking for bank charters which could give them more freedoms under tighter regulatory oversight and better access to capital markets. The crypto world along with other digital financial platforms that serve as PayPal’s competitors have followed the road to similar end points that deepen one’s financial offerings.
Small business owners are in a tough spot when it comes to traditional banks loans as they require ultra-strict criteria and processes that take forever to finalize. PayPal’s method of embedded finance which syncs lending directly with payment and commerce services has already done wonders for a good number of businesses, allowing them to get funds fast based on sales history instead of credit scores. That feature could become so much more powerful with a banking charter.
Regulators will have to confirm that PayPal is financially sound, has a good risk management system in place and is ready to operate as a bank before giving the green light. However, in case of success, small business loans in the USA would not only be delivered by PayPal Bank in an innovative way but also become more accessible and sellers who utilize PayPal’s payment and commerce tools would reap the benefits.