Fintech PayPal (PYPL) has applied for a bank charter in an effort to boost its business and capitalize on a friendly regulatory backdrop under the Trump administration. The company announced that it has filed applications with the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC) to establish PayPal Bank. The company has been under pressure due to intense competition in the fintech space and concerns about a slowdown in growth.
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Shares have declined about 29% year-to-date. Sentiment for PYPL stock could improve if the company gains a bank charter and leverages its large customer base to grow its business.
PayPal Intends to Establish a Bank
PayPal has submitted applications to form a Utah-chartered industrial loan company, PayPal Bank. The company highlighted that since 2013, it has provided access to over $30 billion in loans and working capital to more than 420,000 business accounts worldwide, helping small businesses seeking capital to expand. PayPal expects the bank charter to enable it to provide small-business lending solutions more efficiently in the domestic market, while reducing its dependence on third parties.
Aside from offering lending solutions, PayPal Bank also intends to offer interest-bearing savings accounts to customers. Furthermore, it will seek direct membership in the U.S. with card networks to enhance processing and settlement activities through existing banking relationships. Mara McNeill has been selected to serve as PayPal Bank’s president, given her more than 25 years of experience in financial services across banking, commercial lending, and private equity.
Fintech companies have been expanding their offerings to compete with banks and big financial institutions. It remains to be seen whether PayPal can achieve the kind of success SoFi Technologies (SOFI) saw after gaining a national bank charter through the acquisition of Golden Pacific Bancorp.
Interestingly, there has been a rise in bank charter applications, given a favorable regulatory environment. In fact, last week, the Office of the Comptroller of the Currency (OCC) granted crypto companies Ripple (PC:RIPLX) and Circle Internet (CRCL) preliminary approval to establish national trust banks.
Is PYPL Stock a Buy, Sell, or Hold?
Recently, Bank of America and Baird downgraded PayPal stock, citing ongoing challenges and a slowdown in growth.
Currently, Wall Street is sidelined on PayPal Holdings stock based on 20 Holds, eight Buys, and three Sell recommendations. The average PYPL stock price target of $78.45 indicates 29.2% upside potential from current levels.
