Upgrade, a prominent FinTech platform, has applied to establish its own bank, a strategic move that underscores a broader trend of scaling FinTechs gaining increased control and choice over their funding and operational infrastructure. The company, which has facilitated more than $53 billion in credit through a model built with banks and loan buyers, submitted its application this week to establish a Nevada industrial loan bank, as reported by PYMNTS on Monday (Oct. 12).
This initiative by Upgrade is not intended to replace its existing network of financial institution partners. Instead, the proposed bank would serve to complement these relationships, providing additional avenues for funding its credit products. This approach reflects an evolving dynamic where large FinTechs, as they achieve significant scale, can diversify their funding sources and operational models without abandoning the symbiotic partnerships that have fueled their initial growth.
FinTech Scale Reshapes Bank Partnerships
The application from Upgrade arrives amidst a period of expanding partnerships between FinTechs and traditional financial institutions across various domains, including lending, payments, deposits, and technology. The economic benefits of these collaborations flow in both directions. FinTechs often pay banks for essential regulated services such as loan origination, payments access, and account programs. Conversely, banks gain access to valuable deposits, transaction fees, and lending assets generated through the FinTech’s extensive distribution channels.
The volume of business available for distribution grows proportionally with the FinTech’s scale. A lender facilitating hundreds of millions of dollars in credit has a more limited capacity to spread among originating banks, warehouse lenders, and loan buyers. However, once a FinTech reaches several billion dollars in credit facilitation, it can support multiple funding sources and negotiate larger commitments. This scale enables FinTechs to direct different products or specific portions of their loan production to various institutions, thereby reducing heavy reliance on any single relationship. This diversification in funding has already been observed, with a PYMNTS examination of FinTech lender earnings in May revealing that lenders are utilizing combinations of warehouse facilities, forward-flow agreements, securitizations, committed funding, and deposits.
Affirm serves as a notable example of this diversified strategy, maintaining relationships with approximately 200 funding partners and boasting about $13 billion of forward-flow capacity. Such extensive networks provide resilience and flexibility, allowing FinTechs to optimize their capital structure and manage liquidity more effectively.
The Value Proposition for Traditional Institutions
Traditional financial institutions have compelling reasons to actively pursue partnerships with FinTechs. A FinTech with a substantial customer base can supply a steady stream of deposits and generate significant payments activity, alongside valuable fee income. Furthermore, a FinTech lender can originate and deliver loans that banks are keen to purchase or finance, expanding their asset portfolios.
PYMNTS Intelligence research highlights the increasing reliance of credit unions on outside providers, even as these institutions grow. A September report, ‘FinTechs Want In: How Credit Unions Can Turn Partnerships Into Growth,’ found that credit unions now use outside providers for an average of nine products, a notable increase from six in November 2024. Among credit unions with assets ranging from $1 billion to $5 billion, 61% reported that partners help them innovate faster or at greater scale, up from 55% in November 2025. Strikingly, fewer than 1% of credit union executives believe they could innovate effectively without external partners. This research also underscored FinTech interest in the credit union market, which serves nearly 146 million members, with partnerships supplying products across payments, digital banking, lending, and risk management.
While partnerships offer significant benefits, they are not without challenges. A separate PYMNTS Intelligence report in January, ‘Credit Union Innovation Readiness: How Credit Unions and FinTechs Are Innovating Together,’ found that while 56% of credit unions acknowledged partners helped them innovate faster or at greater scale, 77% also reported that their most recent partnership project took longer than planned. However, the benefits of scale can help mitigate these delays and costs by spreading the expense across a broader network of relationships and a higher volume of transactions.
Precedent and Strategic Outlook
Upgrade’s move follows a similar path taken by Upstart, another lending marketplace, which received conditional approval from the Office of the Comptroller of the Currency (OCC) in July to establish Upstart Bank, as reported by PYMNTS on July 27. Paul Gu, Co-Founder and CEO of Upstart, characterized this application as an evolutionary step driven by the company’s growth in ‘size, scale and product offerings.’ He noted that the bank would streamline partnerships with banks, credit unions, and institutional credit funds, complementing existing funding arrangements.
For a large FinTech lender, owning a bank provides an additional channel for loan origination and a potential new source of funding. This internal capacity does not necessitate the FinTech financing every dollar of lending on its own balance sheet. Instead, it allows for a more integrated and flexible funding strategy, where outside institutions can continue to provide warehouse capacity, purchase loans, or participate through securitizations and committed capital arrangements. This hybrid model offers a sophisticated approach to capital management, enhancing operational efficiency and strategic independence.
