Square’s shares rose up to 7% on Tuesday after the company officially launched its banking operations this week.
Square’s new fully-owned bank will offer FDIC-insured deposit accounts and loans to small businesses that have historically used the company for payment processing.
Square Financial Services, based in Salt Lake City, said on Monday that it will initially focus on offering commercial loans and deposit products, starting with underwriting and originating commercial loans for Square Capital’s existing loan product.
Before its launch, Square Capital loans were issued through a partnership with Celtic Bank.
“Bringing in-house banking capacity allows us to operate more quickly, which will serve Square and our customers as we continue to work to create financial tools that serve the needy,” Square CFO Amrita Ahuja said in a statement.
The company has been working on launching a bank for more than four years, and Square received regulatory approval last March. “We don’t expect the bank to have a material impact on Square’s consolidated balance sheet, total net revenue, gross profit or adjusted EBITDA in 2021,” said the company.
While it is only on the merchant’s side for the time being, the move signals Square’s CEO Jack Dorsey’s broader ambition to make the technology company a one-stop shop for finance. Square also has a history of internally building fast-growing products. The Cash App, which started out as a smaller in-house project, now accounts for about half of Square’s gross profit.
Square’s move has paved the way for other fintechs that may want to cut out the middleman in the banking sector. Fintech Sofi applied for a charter from a national bank last year. But the version Square has followed – an industrial loan agreement, or ILC – has historically been resisted by bank lobbyists. The sector criticized it as a way for companies to circumvent the rules that historically separated the banking sector from commerce.
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