According to CNBC, PayPal announced on Monday that it has applied for approval to form “PayPal Bank,” an industrial bank that would be able to offer loans to small businesses. CEO Alex Chriss stated the move would strengthen the business and improve efficiency to better support small business growth. The applications are now with the U.S. Federal Deposit Insurance Corporation and Utah’s Department of Financial Institutions for review. The company, which owns Venmo, also hopes to offer interest-bearing savings accounts. Shares rose 1.5% in extended trading on the news, even though the stock has slumped about 29% in 2025, a period where the S&P 500 has gained almost 16%. This follows a third-quarter report in October where PayPal posted revenue of $8.42 billion, a 7% year-over-year increase that beat analyst expectations.
The real strategy behind the bank charter
Look, this isn’t really about becoming a “bank” in the traditional sense. You won’t see PayPal Bank branches on street corners. This is about regulatory arbitrage and control. For years, PayPal and other fintechs have had to partner with actual banks to offer things like debit cards, savings accounts, and loans. That means sharing revenue, dealing with a partner’s tech stack, and being subject to their rules and timelines. Getting an industrial bank charter cuts out the middleman. It lets PayPal hold deposits directly, lend from its own balance sheet, and likely improve its margins. Basically, it’s an attempt to own the entire financial relationship with a customer, from payment processing to storing their cash to lending them money. The question is, is the market still interested?
A move born of necessity
Here’s the thing: this ambitious banking push comes while PayPal’s stock is in the penalty box, down 29% this year. The company is under immense pressure to show new avenues for growth beyond its core, but increasingly competitive, checkout business. Everyone from Apple and Google to Block and a thousand niche fintech apps is eating at their edges. Offering banking services, especially to small businesses, is a way to create a deeper, “stickier” relationship. If a business gets its loan from you, processes its payments through you, *and* parks its operating cash with you, it’s a lot less likely to switch to a competitor. This is a classic defensive play disguised as an offensive one. They’re not just expanding; they’re building a moat.
The “industrial bank” advantage
So why an *industrial* bank charter? It’s a specific, often less cumbersome type of charter that has been a popular backdoor for commercial companies into banking. It comes with FDIC insurance for depositors but typically has fewer regulatory requirements than a full national bank charter. It’s the same path taken by companies like Toyota and BMW for their financing arms. For a technology company, the appeal is clear: you get the core benefits of being a bank without necessarily having to become a “bank holding company” with all the extra regulatory baggage that entails. It’s a streamlined path to holding deposits and making loans, which are the two most profitable activities in finance.
What success (or failure) looks like
This is a long-term bet, and approval is just the first hurdle—a process that could take 12-18 months. Success won’t be measured by the announcement, but by whether PayPal can actually attract meaningful deposit balances and build a quality loan book without taking on excessive risk. They’ll be competing with everyone from traditional banks and credit unions to online-only entities like Ally. And let’s be honest, “PayPal Bank” doesn’t exactly scream trust and stability to everyone, especially after years of account freezes and customer service complaints. The company will need to prove it can operate with the rigor of a regulated financial institution, not just a fast-moving tech firm. If they can pull it off, it could finally provide the durable revenue stream investors have been waiting for. If they can’t, it’ll just be another costly side project while the core business keeps facing pressure. The earnings report shows they have the scale to try. Now we see if they have the execution.
