The news: PayPal filed to form PayPal Bank with the FDIC and Utah Department of Financial Institutions. 

With the charter, PayPal would offer savings accounts, more financial services for US small businesses, and enable direct connections to card networks. The charter would be for a Utah Industrial Loan Corporation (ILC), meaning that it can take savings deposits and issue loans while being owned by a nonbank.

Zoom out: PayPal has made major moves in consumer lending. It offers Pay Monthly loans of up to $10,000 in partnership with WebBank, and its smaller-value BNPL loan volume grew 20% YoY in Q3 2025. It forecasted facilitating $40 billion in BNPL volume by year’s end—within spitting distance of current US frontrunner Affirm, at $35.69 billion, per our forecast.

With the ability to make larger loans without the assistance of a partner bank, PayPal could expand its interest-bearing loan program under its BNPL umbrella. Competitors like Affirm and Klarna already notch significant revenues for their Pay over Time and Fair Financing loans, targeting consumers trying to finance purchases that are too small for a personal loan but too large to pay off as a monthly credit card balance. 

PayPal Pay Later’s scale, promotional rewards, and pending bank status could help it dominate rising categories for installment loans, spanning from appliance and home repair services to legal payments.

Our take: Banks and credit unions should anticipate expanded interest-bearing offerings from PayPal Pay Later if its license is approved. And it has a built-in advantage because its buy button and credit underwriting can all happen during the checkout process—whereas banks and credit unions have to rely on consumers applying for a loan well before they intend to complete a transaction. 

Credit unions should emphasize their competitive interest rates to consumers choosing between their loan products or a PayPal loan. While PayPal has the advantage of a bigger online marketing presence, smaller FIs should make their members aware of their low rates and personal customer services.