PayPal is making a significant push into traditional financial services with plans to establish PayPal Bank, a Utah-chartered industrial bank. The payments giant announced its application for deposit insurance through the Federal Deposit Insurance Corporation (FDIC) on Monday, a move that would allow it to hold insured customer deposits similar to conventional banks and expand its core financial product offerings.
This initiative marks a key evolution for PayPal, which has historically operated as a payments and fintech platform, shifting it toward a more fully regulated financial institution.
Focus on Small Business Lending and Efficiency
The primary driver for the proposed bank is to enhance and streamline PayPal's services for small businesses, which CEO Alex Chriss identified as facing "a significant hurdle" in securing capital.
- Direct Lending: The bank charter would enable PayPal to fund its merchant financing products more directly, reducing costs and lessening reliance on third-party funding partners. PayPal has already provided over $30 billion in loans and working capital to more than 420,000 business accounts globally since 2013.
- New Products: The institution also intends to offer interest-bearing savings accounts to customers and seek direct membership with credit card networks to improve processing and settlement efficiency.
- Industrial Bank Model: Structuring the institution as a Utah-chartered industrial bank offers a specific regulatory advantage. While subject to the same oversight as commercial banks, industrial banks are not subject to the Bank Holding Company Act, which provides parent companies like PayPal with greater operational flexibility.
PYUSD Expansion and New DeFi Yield Product
Alongside its banking ambitions, PayPal continues to aggressively grow its crypto footprint, centered around its U.S. dollar-backed stablecoin, PYUSD, which launched in 2023.
- New DeFi Yield: This week, PayPal introduced the PYUSD Savings Vault on Spark, a decentralized lending and liquidity platform. This provides users with a new avenue to earn yield on their stablecoin holdings.
- Competitive Returns: The Spark website advertises an annual percentage yield (APY) of 4.25% for the vault, designed to be comparable to returns offered on other major stablecoin vaults like USDC and USDT. The yield is tied to the Sky Savings Rate, generated by revenue from the Sky Protocol (formerly MakerDAO).
- Vault Mechanism:
- 90% of deposits are allocated to yield-generating strategies through Spark’s Liquidity Layer (lending to overcollateralized borrowers).
- 10% is held as liquidity for instant withdrawals.
- Growing Adoption: The move follows PYUSD's integration into SparkLend in September, which saw an initial $200 million deposited within the first 24 hours. The new Vault is part of a joint effort with Spark to grow PYUSD deposits to an ambitious $1 billion.
- Broader Crypto Strategy: PayPal’s overall crypto strategy also includes wallet-to-wallet transfer functionality, personalized crypto links for sending and requesting funds, and a "Pay With Crypto" feature that allows merchants to accept digital assets with PayPal managing the conversion and settlement.
PayPal's bank application and its expansion into DeFi yield with PYUSD underscore a dual-pronged strategy: solidifying its base in traditional finance while accelerating its role in the regulated digital asset space.
December 2025, Cryptoniteuae