So, here's a thing that happens sometimes: a fintech company decides it wants to be a bank. The latest to make that move is Upstart Holdings (UPST), and investors seem to think it's a pretty good idea.
After the closing bell on Tuesday, Upstart said it plans to submit an application to the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to establish an insured national bank. It also plans to apply for Federal Reserve approval, which would allow it to become a bank holding company.
Why do this? Well, the company says it's the next logical step. "The time is right to launch the first bank built from the ground up on AI," said Paul Gu, Upstart's chief technology officer and incoming CEO. He framed the charter application as "the natural evolution of our business as we've grown in size, scale, and product offerings."
The pitch to customers and partners is that this will make things simpler and cheaper. Gu said it "will allow us to save borrowers even more time and money and streamline our partnerships with banks, credit unions, and institutional credit funds." For the company itself, the potential charter would let it reduce operational and regulatory costs and complexity by placing its lending activities under a single federal framework.
If the plan moves forward, Upstart's chief risk officer, Annie Delgado, has been tapped to be the proposed CEO of the new entity, Upstart Bank.
The market's initial reaction was positive. Upstart shares were up 2.27% in after-hours trading, changing hands at $28.16. It's a vote of confidence, at least for now, in a strategy that aims to turn an AI-powered lending platform into a full-fledged bank.
