Jack Dorsey Launches Internal Bank Via Square Inc
Square Financial Services – a new internal bank and subsidiary of Square Inc, opened this week.
The operation is the culmination of a year of work, following Square Inc’s announcement to open its own bank in March 2020.
Jack Dorsey, CEO and co-founder of Twitter and Square Inc, spearheaded the initiative, which was launched after the charter approval process was completed with the Federal Deposit Insurance Corporation (FDIC ) and the Utah Department of Financial Institutions.
Square Financial Services is classified as an industrial bank, which means it will offer limited financial products and start with underwriting and providing commercial loans for Square Capital’s existing lending product – previously facilitated by a third-party banking partnership. .
The move positions Square as a formidable competitor to industry leaders such as PayPal, which also provides merchant services and business loans in partnership with a bank.
Square Financial Services Products
Currently, the Salt Lake City-based bank operates independently as a managed subsidiary of Square Inc. Its services range from deposit products and business loans to vendors using point-of-sale and card reader facilities.
The main demographic group targeted by the bank will be small and medium-sized enterprises (SMEs) and the new bank will allow Square Inc to diversify its revenue streams by offering new services and products to existing customers.
Fintech has seen an increase in customer use and adoption of services, as well as new startups since March 2020 and the start of the pandemic.
According to a December 2020 study of , FinTech companies in areas such as digital asset trading, payments, savings, and wealth management saw transaction volume and volume growth of 13% and 11%, respectively.
The same study noted that fintech services help reduce poverty and boost economic growth in areas with a higher proportion of underserved populations. “Fintech innovations help reduce the cost of providing services, reach more people, and reduce the need for face-to-face interactions, which are essential to maintain economic activity during the pandemic. “
However, while many FinTech companies provide products and services traditionally offered by banks, these companies are rarely granted bank status. Instead, fintechs work with third-party banks to offer services like small business loans.
Real-time data analysis
Currently, Square analyzes real-time seller transaction history data to manage loan payments and underwriting. The company claims to provide a streamlined application and approval process that is superior to most incumbent financial institutions. Loan capital is also an extension of the business.
Real-time data analysis, according to Square, allows it to lend to businesses that would not be considered by a traditional bank. Square also claims to have a better record on lending to minority-owned businesses than incumbent banks.
According to reports, Square processed 57,000 loans in the fourth quarter of 2020 for a total of $ 254 million and also managed approximately $ 857 million in paycheck protection program loans to over 80,000 small businesses. companies.
Square stock was up 5% after the bank launched yesterday, and according to a statement from Square’s CFO, She said that by opening her own bank, Square will be able to “serve our customers as we continue to work to create financial tools to serve underserved people.”