‘PayPal Is Coming for Banking’

Bank leaders are beginning to see what an influx of new entrants to the industry may mean for the competitive landscape.

A year ago, Federal Deposit Insurance Corp. Chairman Travis Hill issued a call for more de novo banks and said his agency would ease the path to approval for would-be bank founders. Activity increased in response: 31 bank charter applications were filed last year as of Dec. 19, according to S&P Global Market Intelligence, compared with 8 in 2024 and 16 in 2023. But those applications haven’t been filed by would-be bread-and-butter banks. Many have been nonbank companies, such as the carmakers General Motors Co. and Nissan Motor Co., which applied for industrial loan charters. Coinbase has applied for a national trust charter, and digital asset companies including Ripple, BitGo and Paxos have received conditional approval from the Office of the Comptroller of the Currency to operate as national trust banks. And in mid-December, the payments behemoth PayPal Holdings applied for an industrial loan charter in Utah.

Some of this activity could be competitive with traditional banks. In a press release, PayPal said it would expand small business lending and roll out interest-bearing savings accounts.

De novos, more broadly, don’t pose a great competitive threat to the industry as a whole, says Tony DeSanctis, a senior director with Cornerstone Advisors. “The fintechs are a much bigger risk, even the ones who have no intention of becoming financial institutions.”

The move to approve more charters coincides with workforce reductions across most of the federal regulatory agencies, raising questions about potential safety and soundness issues being introduced to the financial system.

“Traditionally, a de novo bank gets the most attention in its first three to five years of life because it needs the most regulatory attention,” says Cornelius Hurley, a lecturer at the Boston University School of Law and former bank general counsel. “You’re not going to be able to do that if senior examiners are leaving, or agencies are being consolidated.”

Tech companies may need additional support getting the right leadership and governance infrastructure in place prior to launching, says Syed Raza, managing director with FTI Consulting. Still, he believes it’s better to bring tech companies into the formal banking system. “As regulators, you have two options. You either let innovation go unchecked or you say, ‘Come through us and be a regulated, licensed financial institution so your activities can be monitored and examined like any other bank,’” Raza says.

Due to their lean infrastructure, tech companies have an edge over banks, he adds. “Traditional banks are a little bit more resource-heavy, and so they might feel a bit more pressure in improving their margins in order to compete with technology firms.”

Bank boards may need to revise their view of the competitive landscape accordingly. Executives and directors who took part in Bank Director’s 2025 Technology Survey ranked local banks and credit unions as their greatest competitive threat, followed by large and superregional banks and then fintech firms such as PayPal. By looking at their competition primarily as other traditional financial institutions, bank leaders may be leaving themselves vulnerable to the ways fintechs are siphoning off deposits and customers.

“PayPal is coming for banking,” says Emmett Shipman, fintech strategy and growth senior manager with Wolf & Co. “What banks need to do is have a really strategic conversation. Are we going to fight back? Or are we going to rely on regulators to be our protectors?”

Those strategic conversations could include questions about how a bank can differentiate itself, how it can speed up the approval process for certain types of loans or how it can meet the needs of younger customers.

“The banks that aren’t looking into the future will be at a competitive disadvantage,” says Scott Baranowski, a principal at Wolf & Co. The banking system is resilient, and by no means should bankers look at the wave of new charters as a death knell for the industry, he adds, but as “another opportunity for them to shake off their hesitancy to try to change and evolve into a better organization.”

DeSanctis says bank leaders may also need to think differently about the solutions they launch to their customers.

“What we as bankers have historically done is get on the phone with our core provider, and they make a pitch to us and then we make a pitch to the customer, and it may or may not have anything to do with what the customer wants,” he says. “Fintechs design from the customer backwards: What does the customer need, and what problems are we solving?”