- Key insight: Upstart now has approval from the OCC to start building a de novo bank subsidiary after a 120-day review process.
- What's at stake: With the OCC denying its first charter application this week, firms seeking bank charters are expecting rigorous review of their applications.
- Expert quote: Upstart's Annie Delgado told American Banker that Upstart "put a great deal of time into making sure that our application was very informationally complete."
Digital lender Upstart Holdings has received conditional approval to establish a bank subsidiary, making it the
The San Mateo, Calif.-based company announced on Thursday evening that the Office of the Comptroller of the Currency granted conditional approval for a de novo bank charter to establish Upstart Bank.
Fintechs are pursuing charter approvals in record numbers, many of which are being approved at a faster rate under the Trump administration than in previous years. However, not everyone has received the same outcome. Upstart's approval was announced on the same day as the OCC
Upstart Chief Risk Officer and pending CEO of Upstart Bank Annie Delgado said the approval process was vigorous and discussed the company's preparations.
"If there was any lingering doubt or skepticism in the public eye about whether the regulators were doing rigorous diligence on the applications, I think that that was answered by virtue of the fact that they're not approving all of them," Delgado told American Banker.
She said that the company was "challenged extensively" by regulators throughout the charter application review process.
"That's exactly what should happen when an institution is seeking the privilege of becoming a national bank," she said. "Regulators are still regulating and they are very much taking that obligation seriously, despite the fact that they are moving more quickly than in previous years."
Delgado attributes Upstart's charter success to the detailed preparatory work behind its proposed business plan and financial documents in the initial application.
"The more effort you put into the clarity and completeness of those, the easier you make the regulator's job in terms of how many questions they have to come back just to understand the content that you've put forward," she said. "We put a great deal of time into making sure that our application was very informationally complete so they would have a good sense of who we are and what we're trying to accomplish."
It was also important for Upstart's team to be on standby for follow-up questions from the OCC, according to Delgado, a process that took 120 days.
"It's important to have a team that's always at the ready to answer those questions quickly so that you don't block any further review of the application, because it is an extensive amount of back and forth," Delgado said.
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Klaros Group co-founder and partner Michele Alt told American Banker that Upstart received its conditional approval even as the OCC issued its first denial of a charter application since 2010, which is as far back as Klaros has data. Klaros Group advised Upstart on its charter application.
"Viewed in the context of OCC and other regulators' pronouncements, I'd say we're looking at two things," she said. "One, this administration is far more welcoming of financial innovators than we've seen for a while. Two, an open door is an invitation, not a guarantee. The application process is rigorous and examiner standards remain very high."
The charter would allow Upstart to reduce operational, regulatory and financial complexity for itself and its third-party capital partners, according to a company statement. The conditional approval follows Upstart's application,
Upstart's applications to the FDIC for deposit insurance and to the Federal Reserve to become a bank holding company remain pending, according to a company statement.
"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," said Upstart co-founder and CEO Paul Gu. "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 is expected to be based in Delaware, according to its application, and will not have physical branches. Pending final approvals, the bank will originate loans to consumers nationwide and accept FDIC-insured deposits. Banks, credit unions and institutional credit funds are expected to continue to purchase the majority of loans originated on the Upstart platform, according to a company statement.
"We're excited about what this new step can do for reducing the cost and complexity of credit," Delgado said. "We think there's a huge opportunity in front of us and we're grateful to have achieved this milestone in the journey."
The next phase of Upstart's journey to becoming a bank, according to Delgado, is executing the business plan approved by the OCC over the coming months.
"Our next focus is really moving from strategic vision into operational execution," she said. "The next step will be demonstrating to regulators that we're appropriately built and ready to open. That's where our focus can now turn to, which is exciting because the build is the fun part."
