Square says it has received conditional FDIC approval to operate a bank, Square Financial Services, which will provide small-business loans and launch in 2021
Referenced Symbols — Square Inc. SQ, -11.69% announced late Wednesday that it had received conditional approval …
MarketWatchEmily Bary
Context & Ripple Effects
Square has been building toward this for years: after lending to merchants through a partnership with Utah's Celtic Bank at fees of 10%–16% of the amount borrowed, it filed in 2017 to charter its own industrial loan company, capitalized with $56M and chaired by Jackie Reses. The conditional FDIC approval converts that application into a license, meaning Square Financial Services can originate small-business loans on its own balance sheet rather than renting a partner bank's charter.
The timing matters because Square Capital had already proven demand, reporting over $500M advanced to small businesses in its first 18 months. Owning the bank closes the loop between Square's payments data and its underwriting — and the related coverage shows the plan landing: the bank started operations in early 2021, followed by a full Square Banking suite of savings, checking, and loans for merchants.
First-order effects
Square no longer needs Celtic Bank as an intermediary for merchant lending — origination, underwriting, and economics move in-house under Square Financial Services, chaired by Jackie Reses.
Small-business merchants on Square gain a direct lender whose approval decisions can draw on their own payment-processing history rather than a third-party bank's criteria.
Second-order effects
Rival payments platforms face pressure to pursue their own charters or accept thinner margins as intermediaries, since Square's cost structure for merchant credit improves once the Celtic Bank fee layer disappears.
The FDIC becomes the gatekeeper for how fast Square expands beyond loans — the same regulator whose posture toward new financial activities shapes what Square Banking can add.
Third-order effects
If the pattern holds, industrial loan company charters become the standard route for commerce platforms to become banks, shifting competition from payment processing to full financial-services bundles and testing the FDIC's willingness to approve non-traditional applicants.
The trend: Payments and commerce platforms are moving from partnering with chartered banks to owning them, with the FDIC's industrial loan company approvals setting the pace.
FDIC approved the deposit insurance application submitted by Square, Inc., to create a de novo industrial bank. Square Financial Services will originate commercial loans to merchants that process card transactions through Square's payments system. https://www.fdic.gov/...
“The bank, Square Financial Services, is expected to launch in 2021. It will operate independently, as a direct subsidiary of Square, Inc. Its primary purpose will be to offer small business loans for Square Capital's commercial lending business, and to offer deposit products.” h…
amid the insanity, a big moment for square — just got FDIC approval to open a bank (focus is on small biz loans via Square Capital) https://squareup.com/... https://twitter.com/...
The last moratorium on ILC applications was lifted in 2013, but this is the first charter the FDIC has awarded in over a decade Among other things, ILC charters allow non-banks to offer FDIC-insured deposits via bank subsidiaries This is huge https://twitter.com/...
This opens up their innovation agility Imagine a humane cash advance product offered to customers who direct deposit through @cashapp Imagine the instaneous borrowing of a credit card but with the borrowed money automatically converting into a fairly priced installment loan. http…
Huge news for @square, and the culmination of literally years of work. And couldn't come at a better time, when small businesses need access to capital more than ever. Congrats @jack, @zamosta, and @ebencuya! https://www.marketwatch.com/ ...
when I read or hear the words “industrial bank” I get flashbacks. many moons ago i tried to secure a denovo license for one. needless to say regulators where not opened for business then. how times change. https://twitter.com/...
Another fintech “bank” coming up- Square is a real force to be reckoned with. Note that this isn't a full-fledged bank but an industrial loan company. https://twitter.com/...
BREAKING: The FDIC just approved Square's application for deposit insurance and is now an actual industrial bank that can even offer small business loans. A bank that let's you invest in bitcoin and stack sats. WHOA. https://www.fdic.gov/...