Almost one year after receiving ‘conditional approval,’ Jack Dorsey has launched Square’s Bank. Operating out of Utah, Square Financial Services is now live with the aim “to operate more nimbly” in the fintech space after completing the charter approval process with the FDIC and Utah Department of Financial Institutions.
Square, which is renowned for its innovative card reader and point-of-sale payment system favored by small businesses, will now be able to offer business loans and deposit products. It will start with underwriting, and originating business loans for its existing lending product. Technically, Square’s banking charter is classified as an industrial banking charter (similar to private loan companies). The bank intends to become a “primary provider of financing for Square sellers across the U.S.” The company shared that opening the bank “deepens Square’s unique ability to expand access to loans and banking tools to underserved populations.”
Using its existing data on sellers’ transaction histories, Square will be able to facilitate streamlined applications and approvals for the loan process. Square Capital has facilitated approximately 57,000 loans during the fourth quarter of 2020 to a total of $254 million (a 62% year-over-year decline that was attributed in part to the pandemic). As of December 31, 2020, Square Capital had also facilitated approximately $857 million in Paycheck Protection Program loans to more than 80,000 small businesses.
Opening its own banking charter will no doubt enable Square to scale its lending operations and financial services over time. This move will give Square a leg up over competitors such as PayPal who still relies on third party banks for its merchant services and business lending faculties. As a bank, Square can also manage risk with its near real-time data on its clients.
While the company hasn’t stated that it expects major results in 2021, this is a good long-term strategy that will likely appeal to investors as the company scales its banking products over time. Square’s giant leap to take banking into its own hands, may soon inspire other fintechs to do the same.