Square’s long-planned bank opens for business

Nearly a year after receiving key regulatory approvals, the payment processor Square has opened its bank, which will offer both deposit accounts and loans to merchants.

Square Financial Services is an industrial bank headquartered in Salt Lake City. It will become the originator of small-business loans that the San Francisco-based company already offers to retailers that use its technology to process their card sales.

Previously, Square Capital loans were issued under a partnership with Celtic Bank, another Utah-based industrial bank. “Bringing banking capability in-house enables us to operate more nimbly,” Amrita Ahuja, Square’s chief financial officer, said in a press release Monday.

Square, whose CEO Jack Dorsey also helms the social media giant Twitter, is one of numerous fintechs that have sought a bank charter in recent years. The firm first applied to open an industrial bank in 2017, then withdrew the application before reapplying in 2019.

Last March, the Federal Deposit Insurance Corp. granted conditional approval to deposit insurance applications by Square and the student loan servicer Nelnet, breaking a logjam on industrial bank charters that had lasted for more than a decade. Nelnet Bank opened last November.

The revival of the industrial bank charter has drawn opposition from bank industry incumbents, which see it as a way for nonfinancial firms, including Big Tech companies, to evade Federal Reserve Board rules that have long kept banking and commerce separate.

The CEO of Square Financial Services is Lewis Goodman, who formerly held the same role at Green Dot Bank. Brandon Soto, another former executive at the prepaid card issuer Green Dot, is the bank’s chief financial officer.

On Monday, Square announced that several of its executives have joined the state-chartered bank, including Sharad Bhasker as chief risk officer and Samantha Ku as chief operating officer.

Square markets its loans, which range in size from $300 to $100,000, as a rapid source of working capital for small businesses. The loans get repaid automatically as a percentage of the merchants’ daily card sales.

During the pandemic, Square put the brakes on lending to its small-business customers, though it did offer government-backed Paycheck Protection Program loans. Square Capital suspended facilitating loans to merchants between mid-March and the end of July, and even in the fourth quarter of 2020, loan volume was down 62% year over year.

Square said Monday that it does not expect its bank’s operations to have a material impact on its total net revenue or gross profit in 2021.

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