Square (NYSE:SQ) announced last night that it has begun operations at Square Financial Services, sending its stock up 3.3% by 9:45 a.m. EST on Tuesday.
You may be thinking: Doesn't Square already provide financial services? Isn't that the whole idea behind a company that performs point-of-sale credit card transactions for small (and, increasingly, large) retailers?
Yes, but this is a different scale of financial services that Square is talking about.
Square Financial Services (SFS), the company said, is its new industrial bank, governed independently from Square and licensed by the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions. It will offer business loans and be the primary provider of financing for Square sellers across the U.S., the company said. Some of the loans it extends will be sold to third-party investors to limit balance-sheet exposure, while others will be kept on its books.
Running Square Financial Services gives Square a greater ability to grow its business over time, and investors are betting on this as they buy Square stock today. When you consider that analysts were already forecasting better than 51% annualized earnings growth for Square over the next five years, it's not surprising investors would be excited about even faster growth than that.