The line of fintechs and crypto companies applying for and quickly receiving bank charters these days is a bit like the way Oprah Winfrey used to give out cars on her talk show: YOU get a charter! YOU get a charter! YOU get a charter! EVERYONE gets a charter!
The latest fintech to apply is San Mateo, Calif., online lender Upstart, which announced Tuesday afternoon that it plans to apply for a national bank charter from the Office of the Comptroller of the Currency. Upstart Bank will be based in Delaware. It will not have any branches, but it will operate as a digital bank in all 50 states, with staff all over the country.
Upstart has evolved over the past decade from a disruptive AI-based lending startup to a publicly traded fintech navigating macroeconomic volatility and regulatory scrutiny. It's gone through rapid growth, a "nuclear winter" of funding challenges and a recent pivot toward secured lending and super-prime borrowers. For 2025, Upstart
Upstart develops and maintains AI models that it uses to analyze small-dollar relief loans, personal loans, auto loans and home equity lines of credit. Most (90%) loan approvals are completely automated, according to the company. About 95% of the loans are sold to a network of about 100 bank and credit union partners. After Upstart Bank is established, Upstart intends to continue selling 95% of the loans originated on its platforms while maintaining enough loans at the bank to support the bank's operation.
According to Annie Delgado, who is currently Upstart's chief risk officer and will become CEO of Upstart Bank, the company doesn't want to be a bank that takes local consumer deposits.
"One thing that is quite important to us is not to compete with our lending partners for their core banking relationship," Delgado told American Banker. "But of course, we will need deposits to source some amount of capital for the bank, and so we intend to use things like brokered deposits and other retail deposit offerings that would help us to do that without becoming a competitor to our lending partners."
Upstart's leaders have run the bank charter idea by several bank partners, she said. "They are comfortable that we will not be competing with them for the local customer deposits. I think we have a good signal from them also that this will be an opportunity for us to deepen our relationships."
Why Upstart's getting a bank charter
According to Delgado, the main reason Upstart is obtaining the bank charter is to expand its reach to more customers, and provide uniform access to credit products across geographies.
This is plausible, according to Michele Alt, cofounder and managing director of Klaros Group.
"Upstart National Bank will be able to lend nationwide with uniform terms and conditions," she said. "This will allow the bank to more effectively serve the entire U.S. population. Eliminating duplication will permit more rapid product innovation and cut costs, which should translate into more approved applicants and lower rates. A national charter will also allow more loans to be funded with insured deposits, enabling lower rates, thereby attracting more customers."
Having one streamlined customer experience and origination experience will allow bank partners to participate in more credit products and dictate the loans and credit products that they wish to invest in and bring into their ecosystem, Delgado said.
The national banking license should help Upstart cut loan costs, she said.
"As you can imagine, supporting a lending marketplace as diverse and complex as the one that we currently operate comes with a lot of duplicative expenses, exam costs, licensing costs," Delgado said. "All of that cost eventually, one way or the other, can show up in the end result for the customer. And so taking out some of that cost from the process, we believe we can then pass some of that savings back onto the customer and ultimately lower the price that they pay for credit."
For instance, Upstart will be able to avoid the costs associated with having multiple lenders review the same application, with Upstart paying for multiple exams and audits, she said.
Alt pointed out that any nonbank offering banking services in the U.S. typically goes through state licenses and/or bank partnerships, which can be complex and inefficient, particularly for lenders.
"For example, in 2020, Mike Cagney, founder of SoFi and executive chairman of Figure, said Figure had more than 96 state licenses and was on track to have more than 200," Alt said. "Operating under a national bank charter eliminates the need to maintain a multistate patchwork of state licenses and be subject to the oversight and exams of multiple state regulators."
Some states have written or are enacting their own laws governing AI usage, which national banks could evade. And under existing law, a national bank may export its home state's interest rates and apply them to loans made in other states, regardless of those states' usury limits, she said.
National banks do have a heavy regulatory burden. Delgado said Upstart has already invested in regulatory preparedness, due to its many bank partnerships.
"We do recognize that being an OCC-regulated bank carries a lot of weight, and there's a lot of responsibility associated with that, so we are prepared to make additional investments, if required by the OCC, to continue to up level our risk management practices," Delgado said.
Upstart Bank will have about 300 employees drawn from Upstart's existing staff, especially from the risk management, legal and operations departments, she said. "There will be a very strong collaboration and working relationship between the bank and the technology side."
Delgado said she joined Upstart ten years ago because she is "passionate about the mission to expand access and lower the cost of credit for American citizens.
"It's been, I think, a system that stagnated for a long time and people pay too much for their loans or have too much stress and uncertainty about the process of getting a loan – will they qualify – so being part of that solution and applying technology to improve that part of everyday life for most of us, most of us have to borrow money on some periodic basis," she said.
