Square says it plans to submit an application to form a wholly owned bank based in Utah. The unit, to be called Square Financial Services, would offer loans and deposit accounts to small businesses and be capitalised with $56 million in cash.
Square would be the third financial-technology company to pursue a banking licence in recent months. In doing so, it follows in the footsteps of online lender Social Finance and mobile-banking start-up Varo Money. Square’s application comes as federal regulators give their blessing to the most new banks since the financial crisis.
Square had been offering small-business loans and cash advances through its lending arm, Square Capital, since 2014 through a deal it had with Celtic Bank, another Utah-based lender. The company says it has extended more than $1.8 billion in credit to more than 141,000 firms.
“As we scale, it’s becoming increasingly important that we have direct relationships with regulators,” said Jacqueline Reses, who leads Square Capital and will be the chairman of the bank.
Square’s consumer-facing initiatives, including its digital money-transfer service, Square Cash, and its recently launched instalment-loan business, would remain separate from the bank.
Square is applying for a charter to form a so-called industrial loan company, an entity that enjoys many of the same privileges as traditional banks and can be part of a corporation that does things other than banking. Sixteen other industrial banks are licensed to operate in Utah, including one owned by BMW.
Ms Reses said Square chose to apply for an industrial-loan company charter as opposed to a traditional banking licence because aspects of its business, such as selling hardware payment terminals and offering food delivery through its Caviar subsidiary, are non-financial.
Such charters have been controversial in the past. Over a decade ago, an application from Wal-Mart to form an industrial loan company was met with a cascade of criticism from bank lobbyists and community groups. They argued that letting non-financial companies own banks would concentrate too much commercial and economic power in one place.