In 2021, Square, Inc. announced its move into the business banking space with the launch of Square Financial Services, its own banking subsidiary.
This division, based out of Salt Lake City, will focus on business banking and serve as an independently-run subsidiary of Square.
While Square Financial Services isn’t fully available to consumers just yet, this post will cover everything that we know so far and what we might expect to see in the future.
First, let’s go over how Square Financial Services came to be.
What is Square?
Square is a San Francisco-based online financial service provider for small businesses and individuals.
The startup, which began as just a smartphone-enabled credit card reader, was founded by Twitter co-founder Jack Dorsey.
Square is a familiar service for many online entrepreneurs, offering features like an e-commerce payment platform, point of sale products, payroll services, and business loans.
Millions of customers and users are interacting with the firm’s technology each day — whether they’re aware of it or not.
You also might be familiar with Square’s peer-to-peer payment platform Cash App, formerly known as Square Cash.
Square Financial Services: What We Know So Far
Square was very busy in early 2021, purchasing $170 million worth of the cryptocurrency Bitcoin and acquiring a majority stake in Jay-Z’s New York-based music streaming platform, Tidal.
The most exciting development could end up being its announcement of Square Financial Services, its own industrial bank, which it began operations for on March 1st, 2021.
The move is significant for several reasons, but one that sticks out is its relative lack of precedent.
Plenty of fintech companies provide banking services like deposit accounts and loans, but very few get their hands on an actual bank charter.
Instead, most companies partner with a third-party bank to provide accounts and FDIC insurance.
Having its own bank could set Square apart from other platforms and set a new standard for fintech banking — furthering its position as a powerhouse in the digital finance industry.
According to Square’s most recent press release on squareup.com, Square Financial Services’ operations have already begun, after completing the long charter approval process with the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions.
The bank’s main functions will be business loans and deposit products, starting with underwriting and originating business loans for its existing lending products.
Square’s Chief Financial Officer, Amrita Ahuja, will serve as the Executive Chairwoman of the board of directors for Square Financial Services.
In the press release, Ahuja highlighted the added efficiency that an in-house bank would provide. She also discussed how this move enables Square to continue its ongoing work of providing financial tools to underserved populations.
Square Financial Services Products & Features
At the moment, there isn’t much public info about the products and features that Square Financial Services will offer.
However, Square will cater to business owners and entrepreneurs as an industrial bank and expand its capabilities to support current Square users.
Square has been a small business lender since 2014 when it started financing merchants through Square Capital.
Square’s emphasis in lending is on underserved communities, with 58% of its current loans issued to women-owned businesses and 35% to minority-owned businesses.
Square Financial Services will enable this work to continue and grow. Without the added step of working with a third-party lender, having an in-house bank allows Square to more efficiently and complete the approval process for loans through customer data that already exists within its platform.
Square will also continue to sell loans to third-party investors to limit balance sheet exposure.
Square’s mention of deposit products as a primary function of the new bank likely refers to the addition of business checking and savings accounts.
Still, the company has not yet made any specific statements on what they’ll look like, so this is purely speculative.
We’ll continue to make updates as more information becomes available, but for now, expect Square to use its new bank to expand on its existing tool-kit.
Banking products and services like debit cards, money management tools, and online payments are already available to Square sellers. Still, with the addition of an in-house bank, we can likely expect more developments in those areas.
Alternatives to Square Financial Services
Square’s bank charter announcement comes at a point where fintech companies, in general, are chipping away at their reliance on traditional banks.
Other institutions like SoFi, Figure, and Oportun have already started acquiring their own bank charters.
Square’s move could encourage competitors like PayPal and Clover to move in a similar direction. Even non-banking fintechs like Robinhood have hinted at the possibility of becoming a bank.
If you need online business banking services right now, you might want to check out banks like:
…which all offer banking accounts for startups, small businesses, and freelancers.
What is Square Bank?
Square Bank is officially called Square Financial Services, which is a new, FDIC-insured banking subsidiary of Square, Inc.
It’s an online bank that has begun operations as of March 1, 2020, and will serve small business owners and individuals through expanded financial services, business loans, and deposit products.
What bank does Square use?
Before getting ahold of its own banking charter, Square partnered with Sutton Bank to provide a business debit card and insure customer funds and Celtic Bank to issue loans.
The move to establish its own bank should give Square more flexibility and efficiency in its banking services.
Is Square a bank account?
We don’t know yet if Square’s new bank will provide traditional bank accounts, but some level of a business checking account can likely be expected.
Is Square Financial Right For You?
Overall, it’s just too early to tell. But if you’re a small business owner that already uses Square for online payments, Square Financial Services is definitely something to keep an eye on.
Square has consistently added products and services since its founding and continues to expand and innovate.
The addition of its own bank could be the culmination of all of it and turn Square into an all-in-one stop for the financial side of your business.
Again, a lot of this remains to be seen. With the effects of an ongoing global pandemic affecting the banking industry as a whole, it’s difficult to say when we can expect Square’s new banking platform to be fully operational.
Until then, stay tuned. We’ll continue to update this post so that you can bank with the most up-to-date and helpful information possible.