Risk & Compliance

Square Refiles Application for Bank Charter

An industrial loan charter would enable Square to provide loans and other financial services directly to merchants.
Matthew HellerDecember 20, 2018
Square Refiles Application for Bank Charter

Payments company Square is taking another shot at obtaining a bank license that would enable it to provide loans and other financial services directly to merchants.

Square said Wednesday it had reapplied with the Federal Deposit Insurance Corp. for an industrial loan company charter after withdrawing its original application in July. It will also amend its application with the Utah Department of Financial Institutions.

If granted a charter, a new unit called Square Financial Services would offer deposit accounts and loans to small businesses, supplementing Square Capital, which makes loans through a partnership with Celtic Bank.

“Square Capital is uniquely positioned to build a bridge between the financial system and the underserved, creating access for small businesses to both capital and the economy,” said Jacqueline Reses, head of Square Capital, in a statement.

Unlike a regular bank charter, an ILC charter would enable Square to provide banking services while continuing to operate such non-banking businesses as a point-of-sale hardware appliance business and even its Caviar food delivery service.

As Reuters reports, “Square’s banking ambitions come as financial technology companies expand the types of services they offer and move beyond their initial area of focus. Many are now seeking to attract deposits.”

Square said that since withdrawing its original application, it has been in discussions with regulators to address some of the questions that had been raised and enhanced certain aspects of the application, such as naming additional officers and building out its Salt Lake City office.

Applications by non-banking companies for ILCs have drawn opposition from the banking establishment and the FDIC has not approved such a charter for any institution since 2008.

But according to American Banker, “many observers believe new FDIC Chairman Jelena McWilliams will eventually approve ILC charters based on recent comments made about the need for more startup banks overall.”

“I am encouraged by innovative firms with novel ideas for expanding access to banking services and making banking more efficient and customer-friendly,” she wrote in an American Banker op-ed earlier this month.

Image: Square