Upstart wins conditional approval for national bank

Upstart has received conditional approval from the Office of the Comptroller of the Currency to establish Upstart Bank, N.A., marking a step toward creating a nationally chartered bank.

The approval follows an application submitted in March, but further regulatory steps remain before the bank can begin operating. Applications to the Federal Deposit Insurance Corporation for deposit insurance and to the Federal Reserve to become a bank holding company are still pending.

If completed, the new bank is expected to be based in Delaware and operate without physical branches. Once all approvals are in place, it would be able to originate consumer loans across the US and accept FDIC-insured deposits.

Upstart said the charter would reduce operational, regulatory and financial complexity for the company and for the third-party capital partners that fund loans on its platform. The group said the new bank is intended to complement those relationships rather than replace them, with banks, credit unions and institutional credit funds expected to continue buying most loans originated through the platform.

The move would deepen Upstart's role in consumer lending after building its business around software and underwriting models used by more than 100 banks and credit unions. Its platform covers personal loans, automotive loans, home equity lines of credit and a revolving line of credit product called Cash Line.

Its lending marketplace relies heavily on automation, with more than 90% of loans fully automated and requiring no human intervention by the company.

The OCC's conditional approval does not allow the bank to open immediately. Upstart must still satisfy requirements related to capitalisation, governance and operational readiness that are customary for newly chartered national banks.

Paul Gu, Co-founder and Chief Executive Officer of Upstart, said the company would continue working with US banking regulators as it seeks the remaining permissions.

"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 Paul Gu, co-founder and chief executive officer of Upstart. "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."

The proposed bank comes as fintech groups continue to weigh the benefits of direct banking licences against the higher level of supervision and capital demands that come with operating a regulated bank. For Upstart, a charter could give it more control over loan origination and funding while preserving a model that still depends largely on outside buyers of loans.

Annie Delgado, Upstart's Chief Risk Officer, has been named the proposed Chief Executive Officer of Upstart Bank, N.A. She said the review process involved extensive scrutiny.

"It's important for the public to understand that efficiency doesn't diminish oversight," said Annie Delgado, chief risk officer of Upstart. "A well-run charter process can be both timely and rigorous. We've been challenged extensively throughout the process, and that's exactly what should happen when an institution is seeking the privilege of becoming a national bank."