BNPL Firms Seek Bank Charters to Gain Control

Buy now, pay later companies are seeking greater control over their operations by applying for bank charters. Sezzle Inc. reported Thursday that it filed an application with the Comptroller of the Currency to establish Sezzle Bank N.A., a national bank. The Minneapolis-based company also submitted an application to the Federal Deposit Insurance Corp. for insurance, marking a shift in how these firms handle lending.

Rivals make similar moves

Competitors are moving in the same direction. Affirm Holdings Inc. applied in January to establish a Nevada-chartered industrial loan company known as Affirm Bank. Klarna, a BNPL pioneer, applied in July to charter an ILC in Utah and recently expanded this request to the FDIC to serve its 30 million U.S. customers.

Block Inc., the owner of merchant processor Square and the Afterpay BNPL service, already operates a Utah ILC called Square Financial Services, though it uses the entity mainly for business loans and banking services for Cash App customers.

Founded in 2016, Minneapolis-based Sezzle also has applied for insurance through the Federal Deposit Insurance Corp. BNPL providers traditionally have partnered with banks to fund their short-term loans to consumers, but now that’s changing. Affirm has indicated that the expected benefits of operating an industrial loan company include reduced reliance on third-party originating bank partners, lower funding costs, and greater control over product offerings. The company cautioned, however, that such benefits “may not be realized in the manner or to the extent we anticipate.”