Square Granted Approval To Open Bank in 2021

Need to Know

• Square was formed in 2009 as a payment services provider to enable small businesses to accept card payments. The platform has been expanded to include point-of-sale payments, financing, and other services. 
• Square offers its services to over 30 million merchants and had annual revenue of $4.61 billion in 2019 (a 43% increase from 2018)
• Square applied and was approved for “deposit insurance” from the Federal Deposit Insurance Corporation (FDIC).
• This move means Square is applying to become an industrial or commercial bank, and would allow it to offer business loans and other deposit products to its customers.
• Square has previously applied to become a bank twice before but finally succeeded.

Analysis

Square, the payment processor loved by small-to-medium businesses around the world, is taking a huge step in its services by getting the official green light to open a commercial bank and offer business loans and deposit products.

Square Financial Services Inc. received the approval for deposit insurance on state and federal levels, which is a measure implemented to protect customers from losses caused by a bank’s inability to pay its debts, as well as promote financial stability. The approval is the first in a decade for the FDIC.

In order to be approved, Square Financial Services was evaluated for seven factors, including:

• The financial history and condition of the institution; 
• The adequacy of the institution’s capital structure; 
• The future earnings prospects of the institution; 
• The general character and fitness of the management of the institution; 
• The risk presented by the institution to the Deposit Insurance Fund; 
• The convenience and needs of the community to be served by the institution; and
• Whether the institution’s corporate powers are consistent with the purposes of the Federal Deposit Insurance Act.

FDIC Chairman, Jelena McWilliams wrote, “FDIC staff found that Square satisfied each of the statutory factors required for approval, subject to certain conditions. One of the conditions would require the proposed bank to maintain levels of capital that are significantly higher than typical FDIC-insured banks.”

Square plans to focus on and offer small business loans to merchants already using its payment processing services. Considering more than 30 million businesses use the app to accept payment and track sales, the market is well-developed and continuously expanding.

After successfully experimenting with accepting bitcoin and working with cryptocurrency, Square is becoming a financial powerhouse.