Shares of the payments company Square (NYSE:SQ) traded roughly 7% lower in the final half hour of trading for no apparent reason.
The company, which facilitates credit card transactions for many small and large businesses, has had a couple of notable events occur over the past few days.
Most recently, the fintech, which secured an industrial banking license last March, launched Square Financial Services, a banking unit within the company that will be able to make loans to small businesses. The bank will also enable Square to offer Federal Deposit Insurance Corporation (FDIC)-insured deposit accounts.
It has taken Square more than four years to launch a bank, and the company is one of the first fintechs to successfully obtain a banking charter. Shares of Square rose close to 5% yesterday on the news.
I'm not overly concerned about the dip in this volatile market. Don't just take my word for it -- the independent research firm MoffettNathanson today reiterated its buy rating and $300 price target on Square.
The launch of the bank is overall great news for the company. Square had already been making loans to its customers, but because it wasn't a licensed bank, it had to use another bank to help originate those loans.
Soon, the company will be able to use cheap FDIC-insured deposits to fund its loans, increasing its margin on those loans whether it holds them on the balance sheet or sells them. Also, with so many existing clients, it has all of the data it needs to underwrite the loans and tons of cross-selling opportunities.