Square to apply for charter to form an industrial loan company, Square Financial Services, which will be capitalized with $56M in cash, chaired by Jackie Reses
The planned unit would offer loans and deposit accounts to small businesses and be capitalized with $56 million in cash
Context & Ripple Effects
By 2017 Square's lending arm was already scaling on rented rails: Square Capital had deployed over $500M to small businesses in 18 months per its May 2015 funding announcement, and merchant loans were originated through a partnership with Utah's Celtic Bank at fees of 10%–16% before Square extended lending beyond its own merchants in August 2016.
This charter application is the pivot from renting a bank to owning one: Square Financial Services, capitalized with $56M and chaired by Jackie Reses, would let Square hold deposits and originate loans itself rather than pay a partner bank for the privilege — the move that later produced conditional FDIC approval in March 2020 and an operating industrial bank by March 2021.
First-order effects
- Square shifts loan origination and deposit-taking in-house under Square Financial Services, ending its reliance on Utah's Celtic Bank as the chartered intermediary for merchant loans.
- Jackie Reses takes chairmanship of the new unit, putting Square's capital-allocation leadership directly over a regulated depository institution from day one.
Second-order effects
- Owning the charter removes the partner-bank fee layer from Square's lending economics, letting it price small-business credit more aggressively than the 10%–16% fee range it paid through Celtic Bank.
- Deposit accounts give Square a cheap, captive funding source for Square Capital's advance business, pressuring rival payment lenders who still fund through bank partnerships to seek their own charters or accept a cost disadvantage.
Third-order effects
- If regulators keep approving industrial loan company charters for payments firms, the partnership-to-charter path Square is walking becomes the standard route for commerce platforms to internalize banking — reshaping which institutions hold small-business deposits and who bears the regulatory burden.
- The pattern points toward consolidation where a handful of platform-owned banks sit between merchants and the traditional banking system, with FDIC approval cadence acting as the gatekeeper for how fast that shift happens.
The trend: Payments and lending companies are migrating from renting bank charters through partnerships to owning them outright, with the industrial loan company route as the regulatory on-ramp.