Square makes a second attempt to break into banking

December 19, 2018


Square is making another attempt to break into banking.


Approval of the plan would allow the payments company to operate without going through outside banks and intermediaries. If approved, Square would also get access to a coveted feature of the banking world — deposit insurance.


San Francisco-based Square is well-known in the payments sector for its credit card processor, payment hardware and Cash App. The start-up also issues small business loans through Square Capital.


The firm has reapplied with the Federal Deposit Insurance Corp. for a special industrial loan company license that allows less traditional financial firms to accept government-insured deposits. It pulled its first application in July, but the company was clear back then that it intended to refile after it could “amend and strengthen” the application.


“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,” Jacqueline Reses, Square Capital Lead said in a statement Wednesday. “We will continue to work closely with the FDIC and Utah DFI as they review our applications for Square Financial Services.”


A Square spokesperson said conversations with state and federal regulators have been “constructive” since July. To answer any lingering questions, the start-up beefed up areas of the applications where regulators were looking for more information.


As a part of that request, Square named additional officers for the company including Brandon Soto, a former Green Dot executive who will serve as the chief financial officer of Square Financial Services.

Square also built out its Salt Lake City offices, provided additional documentation on Square’s products and services, and outlined its Square Capital product offerings and the proposed bank infrastructure and governance.

By green-lighting “Square Financial Services,” regulators could be setting a precedent for other Silicon Valley fintech firms, some of which have stubbed their toes on regulatory issues.


Last week, popular stock-trading platform Robinhood announced it would offer checking and savings accounts with an eye-popping 3 percent interest rate. But the accounts would not have the FDIC insurance that banks offer. Instead, as brokerage cash accounts they would have been insured by the Securities Investor Protection Corp., which might not have been able to protect those funds.


According to the head of the SIPC, Robinhood never contact him or the SEC ahead of the product announcement. A day later, Robinhood’s co-CEOs published a blog post amending their original plan and said they would re-brand and re-name the accounts, which “may have caused some confusion.”


Square’s bank ambitions


Square has partially stumbled into the banking business thanks to its popular Cash App. CEO Jack Dorsey, who also runs Twitter, said on the company’s last earnings call that they “fundamentally” see people using the Cash App like you would use a bank account.


“They store money with us, it’s accepted anywhere Visa is accepted. They can send and receive money from friends and family,” Dorsey said. While it wasn’t a goal, Dorsey said in May that it’s a trend he plans to “lean into.”


Former Square CFO Sarah Friar, who hasn’t been replaced yet, also signaled that the peer-to-peer payment app could start looking way more like your average bank account.


“Anything you do today with a bank account, you should look to the Cash App to begin to emulate more and more of that,” Friar said on stage at ReCode’s annual Code Commerce conference in New York.

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