Industrial Loan Charters Take Center Stage as De Novo Banking Makes a Comeback

More than half of community banks have disappeared since the financial crisis, he told lawmakers, as PYMNTS reported, and “there have been virtually no de novo banks created,” arguing that regulatory tailoring is essential if smaller institutions — and Main Street — are to grow again.

That context helps explain why industrial loan companies (ILCs), within the pantheon of de novo activity, are a strategic priority and option for nonbanks.

Across FinTech, commerce and manufacturing, firms are increasingly pursuing ILC charters as a way to stand up new banks from scratch. We note that the de novo term would apply to newly established banks that in turn apply for deposit insurance. These state-chartered, FDIC-insured institutions allow companies to originate loans and take deposits without forming traditional bank holding companies, giving them direct control over funding, underwriting and customer experience.

Recent conditional approvals for Ford Motor Company and General Motors illustrate how this pathway is expanding beyond digital platforms into legacy industries.  Both Utah-chartered institutions are designed to support vehicle financing and related consumer lending, with heightened capital requirements and a 12-month window to begin operations. For manufacturers, the strategy mirrors FinTech logic: controlling the bank allows tighter alignment between sales, dealer financing and consumer credit while lowering reliance on external funding partners.

For companies building embedded finance strategies, the appeal is practical. Owning the bank allows tighter integration between payments, lending and customer engagement while reducing dependence on sponsor institutions. In effect, ILCs are becoming a de facto mechanism for de novo banking.

From Experiments to Operating Banks

The transition is already visible.

Nelnet opened Nelnet Bank in 2020, becoming the first new industrial bank in more than a decade. Block followed with Square Financial Services, which later gained approval to originate Cash App Borrow loans directly, shifting consumer credit away from partner banks and into its own chartered institution. Brex also pursued an ILC in 2021 before withdrawing its application; the company was acquired last month by Capital One.

More recently, PayPal submitted applications to establish PayPal Bank, a proposed Utah-chartered industrial loan company, signaling that even the largest payments platforms now see value in launching their own deposit-taking institutions rather than relying exclusively on third parties.

After years of limited activity, regulatory cadence appears to be quickening. In 2025, the FDIC issued a formal request for comment on its industrial bank framework, signaling an effort to clarify supervisory expectations and streamline applications.

At the same time, there is also some resistance.

In a Jan. 30 letter opposing PayPal’s application, the Independent Community Bankers of America and the Bank Policy Institute urged the FDIC to halt approvals, writing that “the FDIC should not issue deposit insurance to any ILC applicant, including PayPal Bank,” until Congress closes what they characterize as a loophole in consolidated supervision.

The groups argue that ILCs allow commercial firms to own insured banks without Federal Reserve oversight at the parent level, undermining longstanding policy separating banking and commerce. Their letter warns that the model risks concentrating economic power, weakening credit standards for affiliates and creating conflicts of interest, while granting large firms access to the federal safety net without the prudential framework applied to traditional bank holding companies.

They also point to PayPal’s scale, with $1.68 trillion in payment volume and 434 million active accounts, arguing that its size could amplify losses to the Deposit Insurance Fund and give the company an unfair competitive advantage by leveraging existing merchant relationships to attract deposits. The banking groups further called on the FDIC to pause all ILC insurance reviews until it establishes clearer supervisory standards and confirms it has sufficient examiner capacity to oversee increasingly complex parent companies.

Bessent’s testimony frames the broader stakes. ILCs now sit squarely in that debate over de novo activity, offering a practical on ramp for launch.

For regulators, the challenge is balancing innovation with systemic safeguards. For FinTechs and industrial giants, the calculus is simpler. As payments, lending and deposits converge inside digital platforms and commercial ecosystems, industrial loan charters provide a direct route into core banking infrastructure and activity.