Square Financial Services:
Square, a payment processing company founded by Jack Dorsey, has been expanding its business beyond just facilitating payments. In March 2021, Square announced the launch of its industrial bank, Square Financial Services [1]. This move allows Square to offer loans and deposit accounts to small businesses, further cementing its position as a player in the fintech industry.
The Birth of Square Financial Services
Square’s journey towards becoming a bank started in 2017 when it applied for an industrial loan charter with the Federal Deposit Insurance Corporation (FDIC) [2]. After a lengthy process, Square Financial Services finally received approval from the FDIC and the Utah Department of Financial Institutions to begin operations in March 2021 [4].
The creation of Square Financial Services is a significant milestone for the fintech industry. It is one of the few fintech companies to have obtained a banking license, allowing it to offer loans and deposit accounts directly to customers. By becoming a bank, Square aims to “operate more nimbly” and provide better financial services to small businesses [1].
The Benefits of Square Financial Services
One of the main benefits of Square Financial Services is that it allows Square to offer loans directly to small businesses. Previously, Square partnered with other lenders to provide loans to its customers. However, by becoming a bank, Square can now offer loans on its own terms and at lower rates [1]. This move could potentially disrupt the traditional banking industry, which has been known for its high-interest rates on loans.
Another benefit of Square Financial Services is that it allows Square to offer deposit accounts to its customers. This move could help Square attract more customers who are looking for an alternative to traditional banks. Square’s deposit accounts are FDIC-insured up to $250,000, providing customers with peace of mind [4].
Challenges Ahead for Square Financial Services
While Square’s move into banking is exciting, it also comes with its fair share of challenges. One of the main challenges is regulatory compliance. As a bank, Square Financial Services will be subject to strict regulations and oversight by regulatory bodies such as the FDIC and the Federal Reserve [2]. Failure to comply with these regulations could result in hefty fines and damage to Square’s reputation.
Another challenge for Square Financial Services is competition. The fintech industry is becoming increasingly crowded, with many companies offering similar services. Square will need to differentiate itself from its competitors to attract and retain customers [3].
The Future of Square Financial Services
Despite the challenges ahead, Square Financial Services has the potential to disrupt the traditional banking industry and provide better financial services to small businesses. By becoming a bank, Square can offer loans and deposit accounts directly to its customers, providing them with more flexibility and lower rates.
As Square Financial Services continues to grow, it will be interesting to see how it evolves and competes with other players in the fintech industry. One thing is for sure: Square’s move into banking is a significant milestone for the company and the industry as a whole.
