Upstart Bank approval from OCC advances fintech lender’s charter plan

Upstart Bank approval has moved a step forward after the Office of the Comptroller of the Currency granted provisional permission for the US lending marketplace to establish a bank. The decision could give Upstart access to deposit funding and a direct lending structure, though key federal approvals remain outstanding.

Upstart operates an AI-based lending marketplace that connects millions of consumers with more than 100 banks and credit unions, according to the company. Its models and cloud applications are used to deliver credit products including personal loans, automotive retail and refinance loans, and home equity lines of credit.

The company said more than 90% of its lending process is fully automated and that it expects to add a revolving line of credit. Upstart said a bank charter would reduce operational, regulatory and financing complexity for the company and for third-party capital providers that support its lending activity.

What does Upstart Bank approval mean?

Conditional OCC approval allows Upstart to continue the process of creating a national bank, but it does not complete the chartering process. Upstart said its applications to the Federal Deposit Insurance Corporation for deposit insurance and to the Federal Reserve to become a bank holding company are still pending.

A bank charter can change how a lending platform funds and originates loans. Upstart said Upstart Bank would be able to use deposits as a source of funding and lend directly to consumers using one rate and fee structure, which the company said could lower costs and expand lending opportunities.

The company’s current model relies on a network of bank and credit union partners that use Upstart’s technology to offer credit products. A bank subsidiary would give the group a regulated entity through which it could offer its full product set more consistently across the US, subject to remaining regulatory clearance.

Paul Gu, Upstart’s co-founder and chief executive, said in the company’s statement that conditional approval from the OCC was “an important milestone” for Upstart Bank. He said the company would continue working with the OCC, the FDIC and the Federal Reserve on the remaining steps.

Gu said Upstart Bank would allow the company to lower lending costs and bring its full product offering to all 50 states, which he linked to Upstart’s stated goal of reducing the cost and complexity of credit for Americans.

The development comes as fintech lenders seek more control over funding, compliance and product distribution while operating under closer regulatory scrutiny. For Upstart, final approval would depend on the outstanding federal reviews, including deposit insurance from the FDIC and Federal Reserve approval of its bank holding company application.

This story draws on original reporting from Finextra Research.