The Federal Deposit Insurance Corporation (FDIC) gave the green light to an application from the FinTech firm Square to create a de novo industrial bank in Utah, the agency said on Wednesday (March 18).
Square Financial Services will originate commercial loans to the retailers that use Square for payments. The headquarters will be in Salt Lake City, Utah.
The Utah Department of Financial Institutions still has to issues approvals to the San Francisco-based FinTech.
Square, Inc. was formed in 2009 as a payment services provider to enable businesses to accept card payments. The platform has been expanded to include point-of-sale payments, financing and other services.
“FDIC staff found that Square satisfied each of the statutory factors required for approval, subject to certain conditions. One of the conditions would require the proposed bank to maintain levels of capital that are significantly higher than typical FDIC-insured banks,” FDIC Chairman Jelena McWilliams said a statement.
The new bank anticipates opening next year. It will be a Square subsidiary and will work independently. The bank will extend small business loans and deposit accounts, Square said in a statement.
“We appreciate the FDIC’s thoughtful approach to our application and their recognition that Square Capital is uniquely positioned to build a bridge between the financial system and the underserved,” said Jacqueline Reses, Square Capital lead and executive chairwoman of the board of directors for Square Financial Services. “We’re now focused on the work ahead to build out Square Financial Services and open our bank to small business customers.”
Square launched its campaign to open a bank more than two years ago. Some bank lobbyists and community groups were not in favor of the move because it was going after an Industrial Loan Company (ILC) bank charter.
The bank will be headed by Square Financial Services Chief Executive Officer Lewis Goodwin and Chief Financial Officer Brandon Soto. They both have many years of banking expertise, Square said, including running multiple ILCs.
The FDIC is considering setting new stricter oversight regulations for FinTechs as a way to boost transparency and establish record-keeping rules.