Please ensure Javascript is enabled for purposes of website accessibility

It's Official: Square Now Has Its Own Bank

By Matthew Frankel, CFP® - Updated Mar 2, 2021 at 10:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Its banking charter approval is finalized and the company's banking subsidiary is up and running.

Square (SQ -5.52%) announced on Monday evening that its banking subsidiary, Square Financial Services, has officially started operations. This comes after the fintech giant's industrial banking charter was approved by the Federal Deposit Insurance Corporation and Utah Department of Financial Institutions (the bank is headquartered in Salt Lake City).

Although Square Financial Services is a fully owned subsidiary of Square, it operates completely independently of its parent company. In other words, it has its own CEO, CFO, and other leadership team.

Customer in bike shop using Square payment terminal.

Paying via Square. Image source: Square.

Square Financial Services is an industrial bank, also known as an industrial loan company, which essentially means an institution that provides niche financial services -- in this case, small-business loans. Just to give a couple of other examples, private student lender Sallie Mae is an industrial bank, as are several banks that make auto loans on certain types of cars, such as BMW Bank of North America, a subsidiary of BMW Financial Services.

Square has been in the business-lending space for some time through its Square Capital division. But because Square is not a bank itself, it has had to rely on partnerships with third-party financial institutions.

Square Financial Services will become the primary financing source for Square Capital business loans, thereby keeping the entire process in-house. As Square CFO Amrita Ahuja (who is the executive chairwoman of Square Financial Services) said, "Bringing banking capability in-house enables us to operate more nimbly, which will serve Square and our customers as we continue the work to create financial tools that serve the underserved."

To be sure, Square Financial Services isn't expected to add significantly to Square's earnings. At least not at first. But this could be a first step in expanding Square's lending capabilities, and could become a bigger part of the business.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
$65.60 (-5.52%) $-3.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.