On January 15, 2021, just weeks after the FDIC issued its final rule (the Rule) establishing requirements the parent entity of an industrial bank or industrial loan company (collectively, ILC) must meet for the ILC to have FDIC deposit insurance, Rakuten, a Japanese e-commerce and financial technology company, filed its third application in less than two years seeking FDIC deposit insurance for its U.S.-based bank, Rakuten Bank America.  Per the Utah Department of Financial Institutions website, Rakuten Bank America’s application for a Utah ILC charter was received on July 26, 2019 and remains pending.  

The Rule will apply to a parent company of an ILC that is granted deposit insurance on or after April 1, 2021, or a parent company whose control of an ILC by reason of a change in control or merger occurs on or after April 1, 2021.  Unless Rakuten’s most recent application is granted before that date, Rakuten’s FDIC insurance application, if approved by the FDIC, would subject Rakuten to the terms of the Rule.  However, even in the unlikely event that the FDIC would grant deposit insurance to Rakuten Bank America before April 1, 2021, the agency would impose responsibilities on the parent entity similar to those described in the Rule.  

According to American Banker’s report last week, Rakuten’s most recent application for FDIC insurance features a proposed business plan simpler than those submitted with its earlier applications, with consumer offerings including a cash-back rewards credit card and certain online deposit services.  

Rakuten’s first FDIC deposit insurance application was filed in July 2019,  and was withdrawn in March 2020.  The company’s second application, filed in May 2020, was withdrawn in July 2020.   

We anticipate that opposition to Rakuten’s application from banking trade associations will continue, citing risks to the deposit insurance fund due to ownership of banks by nonfinancial businesses.  Others have voiced fears that approval of Rakuten’s application would pave the way for other large technology companies to provide banking services through ILCs, per a Bloomberg report.