FinTech
Square Wants to Be a Bank Too
Just a few weeks ago it was announced that the mobile-only bank Vary Money had applied for a national bank charter. Now another popular FinTech company also has its sights set on becoming a bank: Square. However, unlike Varo’s charter, Square intends to become an industrial loan company and will be based in Utah. According to the Wall Street Journal, this route was chosen since, under a traditional banking license, the company would no longer be able to engage in other businesses like selling their famed card readers. Similarly, WSJ reports that some of Square’s other financial efforts, including their P2P money-sending app Square Cash, would be separate from this new venture. Should the charter be approved, the new bank would be known as Square Financial Services Inc.
Square’s plan to open a banking wing isn’t exactly out of left field. While it may mostly be known for its small business point of sale solutions, they’ve also offered small business loans since 2014 under their Square Capital initiative. This program was in partnership with Celtic Bank — a bank also based in Utah. WSJ reports that Square Capital has loaned $1.8 billion to 41,000 small businesses to date.
So, if Square is already lending large amounts of cash to businesses through its partnership with Celtic, why bother going solo? As Jacqueline Reses, who currently heads Square Capital and will be the chairman of Square Financial Services Inc., explains, “As we scale, it’s becoming increasingly important that we have direct relationships with regulators.” This would certainly imply that Square has larger plans for its FinTech operations and suggests Jack Dorsey and co. could continue to push the envelope when it comes to small business (and perhaps consumer?) finance.
Another major reason Square might want to expand into banking is so that it can be a one-stop shop. The more services that Square can offer to its customers, the more likely they are to stay loyal and within their “ecosystem.” Therefore, if the company can role out small business banking solutions on par with their other services, they could prove to be an even bigger powerhouse in the industry and a major ally for entrepreneurs
Of course, like with Varo Money charter, this is also an exciting development for FinTech. Although many (like I have) will surely lump the two together due to timing, the charters they’re applying for are actually quite different. While Varo’s national bank aspirations aim to show that banks can be exclusively mobile, Square’s plans to become an industrial loan company displays the belief that nonfinancial entities can still provide great financial services. In the end both of the assertions may prove controversial but, once affirmed, could mark a big leap for the FinTech industry.
