Upgrade applies for a Nevada bank charter with Cross River and Celtic still originating its loans

"If approved, Upgrade Bank would operate as a wholly owned, Nevada-chartered, FDIC-insured subsidiary of Upgrade, Inc. with independent governance and internal controls, adding to Upgrade's existing business and bank partnerships," the company said in a release ^[5]. Crowdfund Insider reported that Upgrade has emphasized the structure is meant to complement, not displace, its ties to partner banks and loan purchasers. By that account, a captive bank would give it greater flexibility and more avenues for funding ^[4].

Spread over the ten years from its 2016 launch to this filing ^[1][2], the $53 billion Upgrade has extended averages about $5.3 billion a year ^[17]. Across 8.5 million customers it comes to about $6,200 each ^[16]. Both are cumulative figures, so neither describes the current annual pace.

The charter choice matters for the parent. An ILC lets a company own an FDIC-insured bank without becoming a bank holding company under consolidated Federal Reserve supervision ^[9]. The bank itself would be new. "We are excited at the prospect of establishing a new bank that will advance Upgrade's mission of bringing responsible and affordable credit to consumers," said Virginia Varela, the proposed chief executive ^[6].

We think the filing is an option on funding, or rather on the cost and variety of funding, and that most originations will keep running through the existing partners for some time after any approval. The counter-thesis is that a bank with its own chief executive and board ^[7][8] is built to take volume. Products could move onto it one at a time, without an announcement that marks the change. Denial is a third outcome, since approval is not assured ^[14]. A fourth is approval on conditions that slow any shift.

We would be wrong if, after approval, Upgrade books its personal loans or card receivables at Upgrade Bank, or if an agreement with Cross River or Celtic ends.