WASHINGTON — Two more companies have announced updates on their pursuit of bank charters.
Lending marketplace Upstart—with which credit unions have partnered–has received conditional approval from the Office of the Comptroller of the Currency to establish Upstart Bank, marking a significant step in the fintech company’s effort to become a federally chartered bank.
According to Upstart, the conditional approval comes about four months after the company submitted its application for a de novo national bank charter.
The California-based company is seeking a charter for a newly formed, full-service national bank and has agreed to the accompanying oversight applicable to a bank holding company. Upstart said the charter would simplify its operations and reduce its reliance on third-party banking partners.
‘Important Milestone’
“Conditional approval from the OCC is an important milestone for Upstart Bank and we will continue to work with the OCC, the FDIC, and the Federal Reserve on the remaining steps,” Upstart Co-Founder and CEO Paul Gu said in a statement. “Upstart Bank will allow us to lower the cost of lending and bring our full product offering to all 50 states, advancing our mission to radically reduce the cost and complexity of credit for all Americans.”
Upstart Bank will be headquartered in Delaware and will operate without physical branches. The charter would allow the institution to originate loans nationwide and accept deposits insured by the Federal Deposit Insurance Corp.
The company said the new bank is intended to complement, rather than replace, its existing funding model. It added that banks, credit unions and institutional investors are expected to continue purchasing the vast majority of loans originated through the Upstart platform.
AI Used in Pricing Risk
Founded in 2012, Upstart uses artificial intelligence to price credit risk and automate the lending process. The company completed its initial public offering in 2020 and trades on the Nasdaq under the ticker symbol UPST. It currently has a market capitalization of approximately $2.67 billion.
Upstart’s conditional approval comes as applications for new bank charters have increased amid what many in the financial technology industry view as a more favorable regulatory environment. However, approvals remain subject to regulatory scrutiny. One day after announcing Upstart’s conditional approval, the OCC denied Wise’s application for a national trust bank charter, highlighting that applicants must still meet supervisory and compliance requirements.
Flexible Finance Applies for Utah Cank Charter
In Salt Lake City, meanwhile, Flexible Finance has applied for a Utah industrial bank charter, a move the financial technology company said would allow it to directly issue its Flex Rent product and expand access to flexible payment solutions for renters nationwide.
The company said it has submitted applications to the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions to establish Flex Bank, a Utah state-chartered industrial bank, according to a company announcement.
If approved, Flex Bank would issue Flex Rent and the company’s other credit products directly while offering customers access to FDIC-insured deposit accounts. Flexible Finance said the proposed bank would operate nationally through digital channels.
‘Permanent Regulated Foundation’
The company said obtaining a bank charter would provide a permanent regulatory framework for its business, which enables consumers to split large recurring expenses, such as rent, into smaller payments that better align with their pay schedules.
“Rent is the single biggest bill in most people’s lives, and it’s often the one least adapted to how they’re actually paid,” Flex Co-Founder and CEO Shragie Lichtenstein said in a statement. “This charter gives us a permanent, regulated foundation to keep closing that gap.”
Lichtenstein said a charter would strengthen the company’s products by allowing them to operate on a foundation of federal deposit insurance and under state and federal banking supervision.
According to Flexible Finance, the company has processed $40 billion in rent payments for 3.2 million renters across the United States since its founding in 2019.
The charter application comes as Flex continues to expand partnerships within the property management industry.
Earlier Partnership
In October, the company partnered with AppFolio to make Flex Rent available to the real estate technology provider’s property management customers, allowing residents to split monthly rent payments through their online resident portals.
Flex has also established partnerships with property management technology providers Entrata, RealPage and Yardi to broaden access to its flexible payment platform.
Industrial banks are state-chartered financial institutions that can be owned by commercial firms and are supervised by both state banking regulators and the FDIC. Approval of new industrial bank charters has drawn heightened regulatory scrutiny in recent years as financial technology companies seek greater control over their banking operations.
