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Square finally launches bank after filing first application in 2017 – FinTech Futures


Square, a US-founded payments company valued at around $55 billion, has officially launched its bank after filing its first application for a banking licence back in September 2017.

Square terminal

Previously, Jack Dorsey’s fintech partnered with Celtic Bank for banking products

Called Square Financial Services, the bank landed its Industrial Loan Company (ILC) licence from the Federal Deposit Insurance Corporation (FDIC) just under a year ago.

A serious US bank contender

The new Salt Lake City-based bank, owned by a fintech worth more than all but four US banks in the KBW Bank Index, will issue loans and offer deposit-insured accounts.

Previously, Jack Dorsey’s fintech partnered with Celtic Bank for banking products.

Square will start by underwriting and originating business loans for Square Capital’s existing lending product. The bank will operate independently, as a direct subsidiary of the digital payments company.

Based on 2019 data, Square says 58% of Square Capital’s loans go to women-owned businesses, and 35% of loans go to minority-owned businesses.

“Bringing banking capability in-house enables us to operate more nimbly,” says Amrita Ahuja, Square’s chief financial officer (CFO), and chairwoman of the bank.

The bank’s previously announced CEO Lewis Goodwin and CFO Brandon Soto will be joined by five other executives.

These include former WebBank executive, Sharad Bhasker, as chief risk officer. More than five-year Square employees Samantha Ku, Homam Maalouf, and Jessica Jiang, join as chief operating officer, chief credit officer, and capital markets head, respectively.

Eight-year Square employee, David Grodsky, will remain as chief compliance officer, moving over from Square Capital to Square Financial Services.

The fintech’s shares jumped as much as 7% on Tuesday following news of the bank launch, closing up on 4.6%.

Overcoming waves of pushback

Square first submitted its application to the FDIC to become a deposit-taking bank in September 2017.

But the fintech’s bid to become a direct rival to incumbents ruffled feathers. The Independent Community Bankers of America (ICBA) told the FDIC Square’s application skirted legislation under the Bank Holding Company Act.

Initially, Square gave into pressure and withdrew its application in July 2018. It took a few months to address regulatory concerns over its wishes to become a bank, particularly infrastructure and governance.

Then in December 2018, it refiled its application for a ILC banking licence with US regulators.

Other fintechs have braved the bank licence route. In February 2020, Varo Money gained FDIC approval.

Some opted for the acquisition route such as Transact Pro’s purchase of Colorado National Bank (CNB) in 2018, and San Francisco-based LendingClub, which bought Radius Bank for $185 million two years later.

Most recently, the US-based corporate credit card provider Brex – valued at $8 billion – applied for a banking licence, joining fellow US fintech applicant SoFi.

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