Run by Twitter co-founder Jack Dorsey, Square Financial Services said Monday its bank charter was approved by the Federal Deposit Insurance Corporation (FDIC) and Utah Department of Financial Institutions (UDFI). It will offer business loans and deposit products to sellers who use Square’s existing lending products, which it previously offered via its subsidiary Square Capital through a partnership with Utah’s Celtic Bank. “Square will now be able to use the massive amount of data they have on current business owners to drive efficiencies in underwriting loans,” Brett Sifling, an investment advisor at Gerber Kawasaki Wealth and Investment Management in Los Angeles, said in an email. “One of the main mantras of the company was to serve the underserved, this move allows for small business owners to potentially qualify for loans that would be rejected by traditional lending services at the big banks.” Some 58% of loans through Square Capital go to women-owned businesses, compared to 17% of traditional loans; and 35% of loans through Square Capital go to minority-owned businesses, compared to 27% of traditional loans, the company said in a statement. Square Capital has already financed more than 426,000 small businesses at an average size of $6,000 a piece, the company said in an email. Square expects that banking operations won’t have a material impact on financials yet this year. The move gives the company “a major leg-up on competitors like PayPal going forward,” Sifling said. “The old banks should start worrying about this national brand that can now operate more nimbly and use their extensive customer data to drive decisions on underwriting loans and sell other products.” Though there are other fintech companies, such as Chime, that also offer loans and traditional banking services, they usually have to partner with third-party financial institutions—something Square no longer has to do. But Square’s not alone in its banking expansion. Last month, Brex, a fintech backed by Y Combinator and Peter Thiel, among others, applied for an industrial bank charter with the FDIC and UDFI. Brex said it sees its bank offering credit solutions and FDIC-insured deposit products to small- and medium-sized businesses. Meantime, “Square is setting themselves up to be a global powerhouse,” Sifling said. “With the economy reopening, we are projecting that small businesses will boom and this could be a great start for their new bank.”
