Upstart seeks US bank charter to launch AI-driven bank

Upstart plans to apply for a US national bank charter, a move that would place parts of its lending activities under federal banking supervision and potentially allow it to take deposits and lend directly under a single national framework.

It intends to submit applications to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to establish an insured national bank called Upstart Bank, N.A. The company also plans to seek Federal Reserve approval to become a bank holding company.

If regulators approve the applications, Upstart expects to shift how some lending activity is conducted. A national bank charter could consolidate oversight under a federal prudential framework, rather than relying on a patchwork of state requirements and partner arrangements.

Regulatory route

Upstart says the planned charter application is intended to reduce operational, regulatory, and financial complexity. It says a charter could also lower costs for third-party capital providers that fund loans through its platform.

Under the proposed structure, the bank would be insured and supervised as a national bank. Upstart would sit above it as a holding company, subject to Federal Reserve oversight if approved.

Annie Delgado, Upstart's Chief Risk Officer, has been named the proposed Chief Executive Officer of Upstart Bank, N.A. The announcement also includes the company's Chief Technology Officer, Paul Gu, as the incoming CEO.

"The time is right to launch the first bank built from the ground up on AI," Gu said. "Applying for a bank charter is the natural evolution of our business as we've grown in size, scale, and product offerings. This will allow us to save borrowers even more time and money, and streamline our partnerships with banks, credit unions, and institutional credit funds."

Deposit funding

Upstart says a national bank charter would allow Upstart Bank, N.A., to access deposit funding and lend directly to consumers. It says the bank could offer a single, consistent rate and fee structure across jurisdictions, which could affect lending costs and availability in some areas.

Upstart currently operates as a lending marketplace, connecting consumers with banks, credit unions, and other funding sources, and providing credit decisioning and related software tools. If approved, the planned charter would add a deposit-taking institution to that model.

Delgado said closer engagement with regulators will be important as more lenders adopt AI tools in credit functions.

"AI-based lending is the future of credit," Delgado said. "As more and more lenders are looking to adopt AI tools for these critical functions, engagement with regulators is critical. If approved, we look forward to working directly with the OCC, FDIC, and the Fed to set the standard for modern AI model deployment within the banking system."

Partner stance

Upstart sought to reassure existing funding partners that it does not intend to replace them. It says banks, credit unions, and institutional funds will remain the main source of capital for most loans originated through its platform.

"Banks, credit unions, and institutional funds will continue to be the capital source for the vast majority of all loans originated on the Upstart platform," Sanjay Datta, President and Chief Capital Officer, said. "We are not seeking to compete with our depository partners for local customer deposits and checking accounts."

The statement distinguishes between deposit gathering in local markets and the funding role partners play through the platform today. It also suggests the proposed bank would sit alongside, rather than displace, Upstart's existing partner model.

Platform background

Upstart is an AI lending marketplace with more than 100 banks and credit unions. Its models and cloud-based applications are used by lenders across a range of consumer credit products.

Its platform includes personal loans, automotive retail and refinance loans, and home equity lines of credit. Upstart also referenced an upcoming revolving line of credit product called Cash Line.

Upstart has more than 90% of loans on its platform that are fully automated, with no human intervention by the company. It was founded in 2012 and is based in San Mateo, California.

Upstart worked with Klaros Group while preparing the bank charter application. Next steps depend on reviews by the OCC, FDIC, and the Federal Reserve, which will decide whether to grant approvals and under what conditions.