Square takes its big step in the banking sector

It looks like Square is interested in becoming something like a bank.

According to WSJ reports, Square intends to submit an application later today (Sept. 7) to form a fully owned and operated bank in Utah.

This business unit would be called Square Financial Services Inc. – and would be designed to offer loans and deposit accounts to small businesses. The bank would be capitalized with around $ 56 million in cash.

This decision makes Square the third major FinTech player to adopt a banking license. Online lender SoFi has made a similar move, as has mobile banking start-up Varo Money Inc. The timing is hardly surprising – federal regulators have been more open to the idea of ​​new banks lately than they never have been since the Great Recession.

To get into banking, Square asks for a charter to form a so-called industrial loan company. Industrial loan companies have many of the same privileges as traditional banks, but they are allowed to be part of a corporation that does something other than banking. Sixteen other industrial banks are currently licensed to operate in Utah.

Square already has an SME lending arm – Square Capital – which it operates under a deal with Utah-based Celtic Bank. This lending transaction was quite successful for Square and has loaned over $ 1.8 billion to over 141,000 businesses.

“As we evolve, it becomes more and more important that we have direct relationships with regulators,” said Jacqueline Reses, who heads Square Capital and will be the chairman of the bank. Lewis Goodwin will be the bank’s interim CEO. Goodwin recently joined Square from Green Dot, where he was instrumental in leading the company’s banking subsidiary.

Square’s other business concerns, such as installment loans and Square Cash, will remain outside the bank.

Ms. Reses noted that the choice to apply for an industrial loan company charter as opposed to a traditional banking license allows Square to continue to participate in the parts of its business that are entirely non-financial – the sale of hardware payment terminals and the delivery of food via his Caviar, for example. Bank holding companies are prohibited from engaging in non-financial business activities.

But industrial loan charters can be a challenge to obtain – Walmart is one of the most public and notable failures. Their attempt to adopt an industrial loan charter sparked a widespread wave of complaints and anger from bank lobbyists and community groups who argued that non-financial corporations that own banks would concentrate too much business and economic power in one place.

And some of these same complaints were filed in relation to the new candidates for the industrial banking charter.

While SoFi does not currently engage in the type of business activities Walmart engages in, it would certainly be legally free to do so in the future, ”wrote Christopher Cole, executive vice president of Independent Community Bankers. of America, in a letter. to the FDIC. “SoFi might even become ambitious enough to build an online retail business that competes with Amazon. “

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