Propel Holdings Launches Propel Bank in Puerto Rico
In a significant move towards expanding its financial services, Propel Holdings, a Canadian loan fintech company, confirmed on Tuesday that it has received approval to establish its own bank, Propel Bank, in Puerto Rico. The bank will operate under an International Financial Entity (IFE) license granted by the Office of the Commissioner of Financial Institutions of Puerto Rico, where Propel Bank will be headquartered. The announcement is a milestone in Propel Holdings’ strategic expansion plans into the U.S. banking services sector.
Clive Kinross, CEO of Propel Holdings, expressed his satisfaction with this development. “We have worked for several years to build the infrastructure needed to launch the bank,” Kinross stated in an interview with American Banker. He emphasized the value of the IFE license in aiding the company’s expansion plans into new jurisdictions and services, besides offering a “banking-grade regulation” that reassures partners.
Understanding the Scope of an IFE License
Unlike conventional banks, Propel Bank will not be a bank holding company, a standard feature of entities operating under IFE licenses. This distinction is critical as IFEs are generally not classified as “banks” under the Bank Holding Company Act.
An IFE is an alternative charter offered by Puerto Rico for non-Puerto Rican companies desiring to enter the financial services space. As Kinross clarified, “IFEs by design must operate outside of Puerto Rico.” The entity leverages the U.S. banking law foundation and Puerto Rico’s regulatory infrastructure, enabling operation across the U.S., subject to state and federal regulations.
The Appeal of IFEs for Fintechs
According to Michele Alt, a partner at Klaros Group, the allure of an IFE license for fintechs lies in its expansive range of banking powers and the absence of supervision by the Federal Reserve under the Bank Holding Company Act. During the Biden administration, there was a surge in interest in such alternative charters as fintechs faced difficulties receiving approval for traditional bank charters at the federal level.
Alt explained that the regulatory supervision of a bank holding company often proves “unappealing at best and impossible at worst” for many fintechs. This is because holding companies are required to limit their activities to those permissible for banks or financial in nature, a constraint not compatible with many fintechs’ broader business models.
Challenges and Opportunities for Fintechs with IFE Licenses
While an IFE license offers many advantages, it also presents some challenges. For instance, while IFE-based bank subsidiaries can apply for FDIC insurance and a Federal Reserve master account, these approvals are not guaranteed and are often subject to intense scrutiny. Alt pointed out that these can be risky for business models that would heavily depend on such access. Indeed, the Federal Reserve has previously rejected master account applications from alternative charter institutions.
Notwithstanding these challenges, Propel Holdings is optimistic about its future. The company anticipates that Propel Bank will be operational by early 2026, offering core consumer lending services to existing and future bank partners in alignment with Propel Holding’s current credit offerings. It also plans for potential expansion of its banking products and services, “subject to regulatory approval.”
In conclusion, the approval of Propel Bank signifies the potential of fintechs to expand their footprint in the U.S. banking sector through Puerto Rico’s IFE charter. As this trend continues, we can expect heightened scrutiny around alternative-charter master-account approvals and FDIC access in the future.
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