Toronto fintech lender Propel has won approval from Puerto Rico regulators to launch a bank, which will help the firm expand in the U.S. and globally.

To be (a bank) or not to be (a bank): Noah Buchman, Propel’s president and chief revenue officer who will also head the new bank, described Puerto Rico’s International Financial Entity licence as a “strategic Swiss Army knife” in an interview. Propel uses AI to help decide who to lend to, claiming the technology helps it make better underwriting decisions so it can take on customers mainstream financial institutions would normally reject. The U.S. is Propel’s biggest market, where the company helps American banks acquire customers and assess their creditworthiness. However, some states restrict non-banks from offering such services.

The Puerto Rico licence will let Propel work with banks in all 50 states and opens the door to further global expansion, Buchman said. If Propel had instead bought a U.S. bank or sought a new U.S. banking licence, the firm would have had to become a bank holding company, which carries strict rules and oversight that it would rather avoid as a fast-growing tech firm, he said.

Deposit taking on the table: The new licence could also let Propel eventually offer a variety of banking services, including chequing accounts, Buchman said. He noted that while fintechs often take on an anti-bank stance to differentiate themselves from their legacy competitors, they all need to work with banks behind the scenes to hold customer funds, issue cards and perform other vital functions. Propel would need to seek further regulatory approval to offer those products, but the Puerto Rico licence “puts us in a position to have options” for all those services, he said, both for third parties and for Propel Holdings itself. The company currently has no plans to use deposits to fund loans rather than relying on third-party capital, he added. “We are very committed to our bank lending partners.” 

Bank boom?: While Propel turned to Puerto Rico for a licence, fintechs Revolut, Starling and Klarna are considering buying U.S. banks or applying for banking licences directly, the Financial Times reported. U.S. President Donald Trump is loosening restrictions on banks, which some fintechs believe could help their chances of getting a charter. Meanwhile, in Canada, Superintendent of Financial Institutions Peter Routledge has said he wants to simplify the notoriously difficult process of obtaining a bank licence. Toronto online brokerage Questrade recently got approval to launch a bank, six years after it first applied.