The two largest buy-now-pay-later lenders in the United States are quietly rebuilding their balance sheets around insured deposits, and the pattern now points in one direction: US BNPL is converting from a capital-markets-funded lending model into deposit-funded banking, with the first concrete product moves likely once charters clear regulatory review and the competitive repositioning visible before year-end 2026. Klarna filed for a Utah industrial bank charter in early July, roughly six months after Affirm applied for a Nevada charter of its own. Read together with a documented thaw in how US regulators treat industrial loan companies, the two filings look less like isolated corporate housekeeping and more like the opening of a structural shift in how checkout credit gets funded. This piece lays out the three signals, what they imply for lenders, merchants and investors, and the reasons the thesis could still be wrong.
In short
- The prediction: US BNPL is repositioning around deposit funding, and the deposit-versus-securitization question is likely to become the defining competitive axis of checkout credit through 2027, with early tells (further charter filings, deposit-product signalling, funding-mix language on earnings calls) expected before year-end 2026.
- Signal 1: Klarna applied to the Utah Department of Financial Institutions and the FDIC on July 6, 2026 to establish Klarna Bank USA, a wholly owned, FDIC-insured industrial bank intended to hold deposits and fund its own loans.
- Signal 2: Affirm filed for a Nevada industrial loan company charter on January 23, 2026, and its own disclosures frame the prize plainly: funding that currently costs roughly 7% through securitization and warehouse lines could shift toward insured deposits priced nearer 3–4%.
- Signal 3: The backdrop is a regulatory thaw, with the FDIC conditionally approving four industrial-bank deposit-insurance applications since January 2026 and a queue of nonbanks (PayPal, Ford, GM, Stellantis, others) pursuing charters, which lowers the perceived risk of applying.
- The caveat: ILC approvals are slow and contested, incumbent banking groups are formally opposing these applications, and narrowing securitization spreads could blunt the deposit advantage before it is ever realized.
Why this matters now
Buy-now-pay-later grew up as a distribution story: a button at checkout that converted browsers into buyers and took a merchant fee for the privilege. The funding side of that story stayed in the background, financed largely through asset-backed securitization, warehouse credit lines and, in the US, a layer of sponsor banks that formally originate the loans. That plumbing worked well while credit was cheap and volumes were small. It becomes a strategic liability once a lender is extending tens of billions of dollars a year and wants to control both its cost of capital and its customer relationship.
Klarna says it has extended more than $91.3 billion in credit to US customers since 2019 and serves roughly 30 million Americans a year. At that scale, the difference between funding loans at 7% and funding them at 4% is not a rounding error; it is the gap between a thin-margin payments utility and a durable lending franchise. The two most consequential BNPL players moving toward charters within six months of each other suggests the industry has reached the point where owning the funding base is worth the regulatory cost and the years of review it entails.
There is also a cyclical trigger worth naming. Checkout credit expanded during a period of low interest rates and easy securitization, and the sector is now navigating its first full cycle as a mature, scaled category. In that environment, the lenders most exposed to wholesale funding feel every widening of spreads directly in their margins, while a deposit-funded competitor would be insulated. The push for charters is partly a bet that the next several years will reward balance-sheet resilience over pure growth velocity, and that the firms which secure cheap, sticky funding early will compound that advantage.
The timing also rhymes with a wider pattern in US fintech. A growing roster of nonbanks now views a bank charter as a competitive asset rather than a compliance burden, and the regulatory posture has softened enough to make the attempt rational. For a sector that spent a decade defining itself against traditional banks, the pivot toward becoming one is the kind of quiet reversal that tends to reshape an industry before the headlines catch up.
Signal 1: Klarna files for a Utah industrial bank charter
On July 6, 2026, Klarna submitted applications to the Utah Department of Financial Institutions and the FDIC to establish Klarna Bank USA, a proposed Utah-chartered industrial bank. According to the company’s own framing, the entity would be a wholly owned, FDIC-insured subsidiary designed to hold customer deposits, fund its own loans, and reduce its dependence on the partner banks that currently sit between Klarna and its US borrowers. The proposed bank would be led by Gary Harding, formerly chief executive of Milestone Bank and Prime Alliance Bank, a hire that signals intent to operate a real depository rather than a paper subsidiary.
The strategic logic is straightforward. Klarna’s US business already carries the scale of a mid-size consumer lender, and every loan it originates through a sponsor bank carries a slice of cost and a layer of dependency it would rather remove. A charter would let it internalize origination, capture the economics of the deposit base, and present a cleaner regulatory profile to merchants and partners who increasingly care about who actually holds the credit risk. Our earlier coverage of the filing, in Klarna files for US bank charter to own its deposits, traced the immediate mechanics; the forward-looking read is that this is a funding-model decision as much as a licensing one.
It is worth stressing what a charter does and does not deliver. An industrial bank can gather insured deposits and originate loans, but the classic ILC structure does not offer full commercial checking, and approval can take well over a year and arrive with conditions. The application is therefore best read as a statement of direction, not an imminent capability. What matters for the prediction is that Klarna has now put deposit funding at the center of its US strategy in a formal, public, and hard-to-reverse way.
Signal 2: Affirm’s Nevada charter and the 7% funding problem
Affirm moved first. On January 23, 2026, it submitted applications to the FDIC and the Nevada Financial Institutions Division to create Affirm Bank, a Nevada-chartered industrial loan company. The company positioned the move as a way to keep scaling responsibly with an FDIC-insured institution behind it, but the more revealing detail sits in its funding economics. Affirm currently funds its loan book at a blended cost of roughly 7%, drawing on securitization and warehouse facilities, and a deposit-taking bank could plausibly raise insured savings balances in the 3–4% range instead.
That spread is the entire thesis in miniature. A monoline lender that funds at 7% and competes with card issuers funding at a fraction of that is structurally disadvantaged, no matter how good its underwriting. Affirm’s disclosures note that its ABS spreads have already compressed, narrowing from roughly 300 basis points in 2023 to about 100 basis points more recently, which shows the market rewarding its credit performance. Deposits would extend that trajectory and, crucially, put the funding base under Affirm’s own control rather than at the mercy of securitization windows.
The parallel with Klarna is the point. Two independent companies, filing in two different states, six months apart, arriving at the same conclusion about how to fund checkout credit is a stronger signal than either filing alone. When competitors that rarely agree on go-to-market both decide the balance sheet is where the next battle is fought, the pattern is usually telling you something about the underlying economics rather than about any single management team’s preference.
| Signal | Date observed | Primary source type | What it tells us |
|---|---|---|---|
| Klarna Bank USA charter application | July 6, 2026 | Utah DFI + FDIC filing, company disclosure | Largest BNPL name commits to deposit funding in the US |
| Affirm Bank charter application | January 23, 2026 | FDIC + Nevada FID filing, investor release | Independent second data point; funding-cost math made explicit |
| FDIC thaw and charter queue | Since January 2026 | FDIC conditional approvals, regulator notices | Enabling condition that makes applying rational now |
Signal 3: The FDIC thaw and the wider charter wave
Neither BNPL filing happened in a vacuum. Since January 2026, the FDIC has conditionally approved four separate industrial-bank deposit-insurance applications, tied to specialty-model applicants including Ford Credit, GM Financial, Edward Jones and Stellantis. A conditional approval is not a green light for everyone that follows, but it does reset expectations: after years in which the industrial-bank path felt effectively closed, applicants can now point to recent, live precedents. That change in perceived odds is itself a signal, because it lowers the cost of trying.
The queue behind the BNPL names reinforces the read. PayPal has pursued a Utah charter, and a broader set of nonbanks (from automakers to established lenders such as OneMain) has filed or signalled interest, according to regulator notices and industry tracking. The common thread is vertical integration: firms that historically rented banking functions from sponsors now want to own payments, lending and deposit-taking outright. BNPL is simply the most consumer-visible corner of that shift.
For readers who want to verify the institutional side directly, the applications sit with state regulators such as the Utah Department of Financial Institutions alongside the FDIC. The point is not that any single approval is assured; it is that the regulatory environment has moved from prohibitive to merely difficult, and difficult is a condition ambitious lenders will accept when the prize is a structurally lower cost of capital.
What the pattern suggests
Put the three signals together and a coherent trajectory emerges. The prize is a lower and more controllable cost of funds, the enabling condition is a more permissive charter environment, and the movers are the two BNPL franchises with the scale to justify the effort. The pattern suggests that deposit funding, not merchant distribution, becomes the axis on which US BNPL competition turns over the next 18 to 24 months. Distribution wars will continue, but the balance sheet is where durable advantage is now being contested.
The near-term, falsifiable tells are specific enough to track. Before year-end 2026, the thesis predicts continued charter momentum: additional filings or public signalling from checkout-credit and neobank players, more explicit funding-mix and deposit language on earnings calls, and procedural movement on Affirm’s application, which has been in the FDIC’s hands since January. None of these requires a charter to be granted; they are the footprints a genuine funding shift leaves while the approvals grind on.
The longer-horizon tells arrive in 2027. Once a charter clears, expect the first deposit-funded loan originations and high-yield savings launches, followed by a gradual unwinding of sponsor-bank arrangements. If, by the second half of 2027, at least one large US BNPL lender is originating materially through its own insured bank and marketing a savings product, the prediction will have resolved in its favor. If the charters stall and the sponsor-bank model persists unchanged, it will not.
One subtlety deserves attention: gathering deposits is a business in its own right, not a switch to be flipped. A newly chartered BNPL bank has to attract insured balances against entrenched neobanks and money-market funds, which usually means competitive savings rates and real marketing spend before the funding-cost advantage materializes. The lenders best positioned to win here are those that can convert an existing base of tens of millions of checkout users into depositors, turning a payments relationship into a banking one. That cross-sell, rather than the charter itself, is likely to separate the winners from the also-rans, and it is why the size of a lender’s active US customer base is such a load-bearing number in this thesis.
| Funding source | Approximate cost of funds | Control over funding | Strategic drawback |
|---|---|---|---|
| Warehouse credit lines | Higher end of the range, floating | Low; lender covenants apply | Rate-sensitive, capacity-capped |
| Asset-backed securitization | Roughly 7% blended, spread-dependent | Medium; subject to market windows | Closes in stress; spreads can widen |
| Sponsor-bank origination | Embedded fees plus dependency | Low; third party holds the charter | Margin leakage, limited product control |
| Insured deposits (target model) | Roughly 3–4% on savings balances | High; lender owns the base | Compliance overhead, capital rules, marketing spend |
Wider context: the sponsor-bank model under pressure
To understand why the charter push is happening now, it helps to see what it replaces. Most US fintech lending has run on a partner-bank arrangement in which a chartered institution nominally originates loans that the fintech markets, services and often funds. That model let BNPL scale quickly without owning a charter, but it distributes economics and control to the sponsor and leaves the fintech exposed if the partner, or its regulator, changes terms. As volumes grew, the arrangement started to look like paying rent on infrastructure a lender could eventually own.
The regulatory conversation around checkout credit has also matured, and maturity tends to reward institutions that control their own stack. In the United Kingdom, buy-now-pay-later has moved firmly inside the regulatory perimeter, a shift we examined in why the UK’s new BNPL rules will shrink checkout volumes this half. Regulated credit favors players with bank-grade compliance, capital and governance, which is precisely what a charter forces a lender to build. The deposit pivot and the compliance pivot are, in that sense, the same move viewed from two angles.
There is a competitive dimension too. Card networks and issuers fund at low cost and are pushing deeper into installment features, while payments consolidation keeps redrawing the map, as seen in the continued deal activity we tracked in why another billion-dollar cross-border payments deal is likely before year-end 2026. A BNPL lender that cannot match incumbent funding costs will struggle to defend margin as installment credit commoditizes. Owning deposits is one of the few structural answers available.
Implications for lenders, merchants and investors
For BNPL lenders, the strategic implication is that scale now cuts both ways. Above a certain volume, the securitization-and-sponsor model becomes the expensive option, and the firms large enough to fund a charter effort gain an advantage that smaller rivals cannot easily copy. The likely result is a widening gap between a handful of BNPL players that can become quasi-banks and a long tail that remains dependent on wholesale funding and partner charters. Consolidation pressure on that tail is a plausible second-order effect.
For merchants, the near-term change is modest but the direction matters. A BNPL provider funded by deposits can, over time, price more aggressively, offer longer or cheaper installment terms, and weather credit cycles that would force a wholesale-funded rival to pull back. That stability is worth something at checkout, where availability of credit converts sales. The economics of who funds the loan increasingly feed back into merchant acceptance costs, a dynamic adjacent to the repricing we explored in why US merchant checkout economics face a structural repricing by early 2027.
There is also a competitive read-through for the long tail of smaller BNPL and installment providers. Firms without the scale to fund a charter effort will likely stay tethered to sponsor banks and wholesale markets, which leaves them structurally higher-cost just as the leaders move to lower their funding. That gap tends to resolve through partnership, acquisition or exit rather than heroic organic catch-up, so a deposit pivot at the top of the market quietly raises the pressure on everyone below it. Merchants weighing multi-provider checkout strategies may find the field narrowing toward a few better-capitalized names over the next two years.
For investors, the charter push reframes the BNPL bull and bear cases. The bull case is that a successful deposit pivot turns a volatile, spread-dependent lender into a more stable franchise with a defensible cost of funds and a cross-sell surface. The bear case is that the transition is slow, capital-intensive and uncertain, and that the market may re-rate these names as banks, with the lower multiples and heavier capital expectations that banking implies. Which narrative wins depends heavily on approval timing and on how the deposit economics actually land once real balances are gathered.
| Scenario | What would trigger it | Rough likelihood | Timeframe to read-through |
|---|---|---|---|
| Deposit pivot takes hold | At least one charter clears; savings product and own-bank origination launch | The signals point to this as the base case | Second half of 2027 |
| Slow grind, no resolution | Applications sit in review with conditions; sponsor model persists | Plausible given historic ILC timelines | Through 2027 and beyond |
| Pivot stalls or reverses | Denial or restrictive conditions; securitization stays cheap | Less likely but not negligible | Visible within 12 months of a decision |
Caveats: what could go wrong
The most important counter-signal is that industrial-bank approvals are slow and politically contested. The path can take well over a year, decisions can arrive with conditions, and the process can be denied outright. Incumbent banking groups have a long record of opposing ILC applications on competitive and safety-and-soundness grounds, and formal objections to these very filings mean the approvals are unlikely to be smooth. A prediction that leans on charters clearing is exposed to a regulatory calendar no applicant controls.
A second caveat cuts at the economics rather than the process. Affirm’s own disclosures show securitization spreads compressing sharply, from roughly 300 basis points in 2023 to about 100 more recently, which means the funding-cost gap deposits are meant to close is already narrowing on its own. If wholesale funding stays cheap, the marginal benefit of a deposit base shrinks, and the years of effort and capital a charter demands may not pay for themselves. Deposits are also not free: insured balances carry marketing costs, capital requirements and compliance overhead that can erode the headline rate advantage.
A third caveat is regulatory drift in the other direction. The UK example, where BNPL has been pulled inside formal regulation as covered in FCA regulates buy now, pay later from today, shows how quickly the rules of the game can tighten. A harsher US stance on ILC charters, deposit insurance for specialty models, or BNPL underwriting could slow the pivot even where the economics favor it. The prediction is directional and grounded, but it is a bet on institutions behaving as their filings suggest, and institutions can change their minds.
Frequently asked questions
What exactly is the prediction here?
That US buy-now-pay-later is repositioning around insured deposit funding, and that the deposit-versus-securitization question becomes the defining competitive axis of checkout credit through 2027. The near-term tells (further charter filings, deposit-mix language, procedural movement on pending applications) are expected before year-end 2026, with product launches likely in 2027 once charters clear.
Why do bank charters matter so much for BNPL?
Because they change how the loans are funded. A charter lets a lender gather insured deposits, potentially priced around 3–4%, instead of relying on securitization and warehouse lines that can cost closer to 7%. It also removes the sponsor bank from the middle of the relationship, giving the lender more control over economics, product and compliance.
How is this different from Klarna’s charter filing being covered as news?
The filing itself is an event; this piece is a forward-looking read of what two filings plus a regulatory thaw imply together. The argument is that Klarna and Affirm pursuing charters within six months of each other, against a backdrop of FDIC approvals for other industrial banks, points to a structural funding shift rather than two isolated corporate decisions.
Could the prediction simply be wrong?
Yes, and the piece flags the main ways. Charter approvals are slow and can be denied, incumbent banks are formally opposing the applications, and narrowing securitization spreads may erode the deposit advantage before it is realized. If the sponsor-bank model persists unchanged through 2027, the thesis will not have held.
What is an industrial bank or ILC, and why Utah and Nevada?
An industrial loan company is a state-chartered, FDIC-insured depository that can gather deposits and make loans but does not offer the full range of commercial banking services. Utah and Nevada are the states most associated with the charter, which is why fintechs and specialty lenders cluster their applications there.
What should merchants watch for?
Signs that a BNPL partner is moving toward its own funding base: savings-product launches, own-bank origination, and language about reducing sponsor-bank reliance. Over time, a deposit-funded provider can offer steadier availability of credit and potentially better terms, which matters at checkout where credit availability drives conversion.
How would investors know the pivot is working?
The clearest read-through is a large BNPL lender originating materially through its own insured bank and marketing a savings product by the second half of 2027, alongside falling funding costs and less reliance on securitization windows. The risk is that the market re-rates these names as banks, with heavier capital expectations and lower multiples.
Does regulation help or hurt this shift?
Both, depending on which way it moves. A permissive charter environment, evidenced by recent FDIC approvals, enables the pivot, while tighter BNPL or deposit-insurance rules could slow it. The UK’s move to regulate BNPL shows how fast the perimeter can shift, and US regulators could tighten or loosen in ways that materially change the timeline.
What is the single most important thing to watch next?
Procedural movement on Affirm’s application, filed in January 2026, and any additional charter filings from checkout-credit or neobank players before year-end 2026. Those are the earliest hard signals that the deposit-funding shift is real rather than rhetorical.