Square says Square Financial Services, its industrial bank, has started operations after getting FDIC approval last year
Known for its innovations in the payments sector, Square is now officially a bank. — Nearly one year after receiving conditional approval, Square said Monday afternoon …
Context & Ripple Effects
This closes a four-year arc: Square applied for an industrial loan company charter back in 2017 with $56M in committed capital under Jackie Reses, received conditional FDIC approval in March 2020, and has now flipped Square Financial Services on. Until now, Square's lending ran through partners — its Square Capital advances sat outside a bank charter, and like other fintechs it leaned on services such as Cambr that rent out smaller banks' licenses to move money.
Owning the charter changes what Square can do with merchant data and deposits: the same sellers it processes payments for become direct borrowers, which is exactly the playbook behind the later Square Banking launch of savings, checking, and loans.
First-order effects
- Square can now originate and hold small-business loans on its own balance sheet instead of routing them through partner banks, ending its dependence on rented banking infrastructure like Cambr's.
Second-order effects
- Other payments-led fintechs still borrowing bank licenses face pressure to pursue their own ILC charters or accept thinner margins, while the partner banks collecting fees from fintech intermediaries see that revenue stream at risk.
Third-order effects
- If the ILC route keeps working for fintechs, the line between payment processor and regulated bank erodes structurally — lending, deposits, and payments consolidate inside software companies rather than staying split across chartered banks and technology vendors.
The trend: Fintech companies are vertically integrating into chartered banking, converting payment-distribution advantages into balance-sheet lending businesses.