Square just got approval to open a bank, which it plans to do next year.
Square, the digital payments company run by Twitter’s Jack Dorsey, got the nod by federal and state regulators to open a bank in Utah.
In a press release Square said the Federal Deposit Insurance Corp. voted to conditionally approve Square’s application and that it received charter approval from Utah Department of Financial Institutions. Square is aiming to launch a bank in 2021 called Square Financial Services. The bank will be supervised by the FDIC and the Utah Department of Financial Institutions.
“We appreciate the FDIC’s thoughtful approach to our application and their recognition that Square Capital is uniquely positioned to build a bridge between the financial system and the underserved,” said Jacqueline Reses, Square Capital Lead and Executive Chairwoman of the board of directors for Square Financial Services in a press release late Wednesday. “We’re now focused on the work ahead to build out Square Financial Services and open our bank to small business customers.”
The main purpose of the bank is to provide loans and deposit products for small businesses. Square said in the release it plans to continue selling loans to third party investors and that it doesn’t expect the bank to have a material impact on its balance sheet this year.
Square is among the fintechs that are looking to branch into banking as they diversify their revenue stream and bring new services to their existing customers. Small businesses have long been ignored by traditional banks and are prime targets for the nation’s fintechs including Square.
Square is the second fintech to gain a banking charter from the Federal government in recent weeks. Varo Money gained approval by the FDIC. in February. Meanwhile, in the same month LendingClub, a trailblazer in online lending, made its first fintech acquisition, spending $185 million in cash and stock to acquire Radius Bancorp. Through the acquisition, LendingClub gets access to Radius Bank, the popular digital bank operating in the U.S. with about $1.4 billion in assets. LendingClub is the first fintech company to buy its way into banking, eschewing the process of applying for a national bank charter.
The bank charter comes at a precarious time for Square and other fintechs as the COVID-19 virus spreads through the U.S. and around the globe. With businesses mandating people work at home, schools closed, curfews in place and stores forced to reduce their hours of operations, the global economy is in turmoil. The majority of Square’s customers are small businesses that are getting hit hard by the outbreak. That has weighed on Square’s stock as investors worry its business will plummet along with its customers.
Those worries even prompted Citi to slash its investment rating on Square to neutral from buy this week. The Wall Street firm estimated gross payment volume or GPV could decline 65% in the current second quarter if merchants are forced to completely shutter their doors to stem the spread of the virus. “We would expect Square to be disproportionately impacted from a likely wide spread of COVID-19 in the United States,” the Wall Street firm wrote.