Sezzle, the buy now, pay later provider, announced on 13 August that it is pursuing a national bank charter. As Banking Dive reported, CEO Charlie Youakim told investors the company will file its OCC charter application by the end of September, with approvals from the OCC, Federal Reserve, and FDIC expected to take 12 to 18 months. Notably, this is a pivot from Sezzle's earlier plan to pursue an industrial loan company (ILC) charter.
Youakim's explanation is direct. As Payments Dive quoted him: "We're good with the federal rules. What I'm less comfortable with is politicians in different states." New BNPL regulations in New York, Illinois, and Oregon, imposing rules such as dispute resolution processes, consumer refunds, and registration requirements, drove the change of course.
For eCommerce merchants, this is not just a regulatory filing. It signals that the BNPL landscape is entering a phase of structural change, and the payment options at checkout may look very different within the next 18 months.
Why Sezzle is doing this
A national bank charter cuts through state-by-state complexity. A federally chartered bank operates under a single regulatory framework, the Office of the Comptroller of the Currency, with federal preemption that supersedes most state-level lending regulations. As TD Cowen analyst Hoang Nguyen noted in Shopifreaks' coverage: "A national charter would let Sezzle export its rates and product terms into every state without states being able to challenge them."
But it also means accepting the full weight of bank regulation: capital requirements, consumer protection obligations, FDIC oversight if they take deposits, and the kind of regulatory scrutiny that tech-first fintech companies have historically avoided.
Youakim's framing is telling. He did not describe the bank charter as a growth opportunity. He called it "the most robust solution." That language suggests Sezzle sees the current state-by-state approach as unsustainable, and they are choosing the heaviest regulatory option because the alternative is worse.
What this means for the BNPL market
This has direct implications for how the BNPL market will consolidate. Operating as a bank is not cheap. The capital requirements alone will squeeze smaller BNPL providers who cannot afford the regulatory infrastructure. Expect three outcomes:
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Consolidation among BNPL providers: Smaller players who cannot afford a bank charter or comprehensive state-by-state compliance will be acquired or exit.
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Deeper integration with established financial institutions: Klarna has already received a banking licence in Europe. Affirm has been expanding its banking relationships. The line between "fintech" and "bank" is dissolving.
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Changes to BNPL product features: Bank regulation brings consumer lending obligations, which may affect how BNPL products are structured, disclosed, and marketed at the point of sale.
What eCommerce merchants should do now?
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Evaluate your BNPL provider's stability: Not every BNPL provider will navigate this regulatory transition successfully. If you are using a smaller provider, understand their regulatory strategy. The last thing you want is a BNPL integration that fails during peak season.
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Understand your incremental conversion lift from BNPL: If 15% of customers use BNPL, that does not mean conversion drops 15% without it. Understanding the true incremental lift helps you assess the risk you are actually carrying if your provider changes terms or exits.
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Verify your BNPL disclosures are current: As BNPL regulation tightens, disclosure requirements at checkout will change. If you have customised your checkout to promote BNPL in your own marketing language, verify compliance and be prepared for requirements to evolve.
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Review your BNPL contractual terms: When BNPL providers take on banking regulation costs, those costs need to be recovered somewhere. Review your agreements now. Understand what your provider can change unilaterally, what notice periods apply, and what your options are if fees increase materially.
The bigger picture
Sezzle's bank charter pursuit is part of a broader convergence between fintech and traditional banking. The BNPL market is consolidating and re-regulating simultaneously. Merchants who understand their exposure now will handle the transition smoothly. Those who do not will discover problems at the worst possible time.
About On Tap
On Tap is a growth-focused eCommerce consultancy helping mid-market and enterprise merchants build payment infrastructure that supports sustainable growth. From BNPL strategy and checkout optimisation to payment stack audits and conversion measurement, On Tap helps merchants stay ahead of a rapidly evolving payments landscape.
If you want to audit your BNPL setup and understand your exposure, get in touch.
