Japanese Online Retailer Rakuten Seeks U.S. Bank Charter

Japanese online merchant Rakuten Inc. wants to open a bank in Utah to offer loans, credit cards and other financial services to customers of its existing U.S. cashback-shopping business, the company said Friday.

“We’re going to focus on that customer base we already have,” said Lee Carter, the new head of banking development at Rakuten and a former UBS Group AG executive. “That’s really the community that we want to extend additional financial services to.”

Rakuten in 2014 acquired Ebates Inc. in a $1 billion all-cash deal and says it now has 13 million regular clients in the U.S. But Rakuten’s foray into the U.S. banking system could face political headwinds, given its foreign ownership and technology focus.

Most traditional banks in the U.S. face restrictions and oversight from the Federal Reserve that extend to their owners, limiting the number of commercial firms opening up banks.

Rakuten is applying to be an industrial-loan company, a charter that permits firms outside of the financial services industry to operate banks without being subject to Fed oversight.

Bankers immediately raised concerns about Rakuten’s bank plans, asking regulators to conduct a thorough review.

“Rakuten is a major technology firm engaged primarily in nonfinancial activities,” said American Bankers Association chief Rob Nichols. “Allowing Rakuten to participate in banking activities would raise important questions about the free flow of credit, consumer privacy and possible conflicts of interest.”

In 2005,

Wal-Mart

applied for a similar bank charter, prompting opposition from small banks who said the retail giant was exploiting a legal loophole. Wal-Mart withdrew its application in 2007.

With banks facing growing competition from technology firms aiming to provide financial services, the industrial-loan charter has renewed debate about which firms should be allowed into the banking industry.

In 2017, Square Inc. announced its plan to open an industrial-loan company in Utah. The company has not yet obtained approval from regulators.

Mr. Carter said he had already discussed the Rakuten’s business plan with the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions, the two agencies that will have to approve its banking plans.

“The regulators are certainly concerned about our foreign ownership and they want a lot of information on the parent company, which we’ve provided,” said Mr. Carter.

Write to Lalita Clozel at lalita.clozel.@wsj.com

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