Sezzle Joins BNPL Rivals in Seeking a Bank Charter – Digital Transactions

Joining a trend building in the buy now, pay later payments sector to gain more control over their operations and offer more diversified services, Sezzle Inc. reported Thursday it has filed an application with the Comptroller of the Currency to charter a national bank to be known as Sezzle Bank N.A.

Founded in 2016, Minneapolis-based Sezzle also has applied for insurance through the Federal Deposit Insurance Corp. BNPL providers traditionally have partnered with banks to fund their short-term loans to consumers, but now that’s changing.

“If approved, Sezzle Bank would offer a broad range of banking products and services, including FDIC-insured deposit accounts, checking and savings accounts, and credit products,” Sezzle said in a news release. “Sezzle Bank would focus on digitally native consumers, including those new to credit, and who tend to avoid using more traditional credit products such as credit cards, to provide a choice of lending options.”

Competitors ahead of Sezzle include Affirm Holdings Inc., which in January said it had submitted applications to the Nevada Financial Institutions Division and the FDIC to establish a Nevada-chartered specialty bank known as an industrial loan company to be called Affirm Bank. BNPL pioneer Klarna in July said it had applied in Utah to charter an ILC.

In its annual report to the Securities and Exchange Commission, San Francisco-based Affirm said “the expected benefits of operating an industrial loan company [include] reduced reliance on third-party originating bank partners, lower funding costs, and greater control over our product offerings.” Affirm cautioned, however, that such benefits “may not be realized in the manner or to the extent we anticipate.”

Sweden-based Klarna has operated a licensed bank in Europe since 2017 and uses third-party financial institutions to serve its 30 million U.S. customers. But it has applied to the Utah Department of Financial Institutions and the FDIC to establish Klarna Bank USA.

“The charter would let Klarna bring its existing banking operations in-house, strengthening reliability across payments, savings, credit, and merchant services, and supporting sustainable growth,” Klarna said in announcing the applications. “For consumers, the result is a different kind of bank: transparent, safe, and free of hidden fees, with digital tools and traditional banking products in one place.”

“They’re getting charters because they want to make the income their bank partners used to,” Chicago-based payments analytics consultant Cliff Gray, founder of Lakeland Scientific, tells Digital Transactions News.

Block Inc., owner of merchant processor Square and the Afterpay BNPL service, has a Utah ILC called Square Financial Services, but uses it mainly to provide business loans and banking services for its Cash App customers.