Square obtains conditional FDIC approval for banking license
Payments startup Square Inc. set to provide banking services after get conditional approval of a banking license by the Federal Deposit Insurance Corp.
Square has obtained an “Industrial Loan Company” license, a form of de novo banking license that the FDIC provides to newly created banks that are bound by supervisory standards.
The bank, Square Financial Services, is expected to launch in 2021 and will operate independently, albeit as a direct subsidiary of Square. The bank will primarily provide small business loans to Square Capital’s lending operations as well as deposit accounts.
“We appreciate the FDIC’s thoughtful approach to our application, and their recognition that Square Capital is uniquely positioned to build a bridge between the financial system and the underserved,” said Jacqueline Reses, head of capital at Square, in A declaration. “We are now focused on the work ahead to develop Square Financial Services and open our bank to small businesses. “
In addition to obtaining conditional approval from the FDIC, Square also received charter approval from the Utah Department of Financial Institutions. Square Financial Services is headquartered in Salt Lake City.
The FDIC approval gives Square FDIC insurance, meaning depositors’ funds are insured up to $ 250,000. It’s a guarantee for depositors to know that if something goes wrong with a particular bank, their funds are covered up to the limit of $ 250,000.
Nonetheless, the move can prove to be controversial. Reuters reported that the move is likely to attract criticism from consumer advocates, banking officials and Democratic lawmakers who claim the special license is a loophole that poses risks to the banking system and consumers.
Some of Square’s app reviews include Americans for Financial Reform and The National Coalition for Community Reinvestment, who both wrote letters to the FDIC opposing the request. Arguments against the license include claims that the app does not separate banking from commerce, that ILCs pose a significant risk to the financial system, that Square should be subject to all regulations imposed on banks, and that the Square’s service does not meet the provisions of the Community Reinvestment Act because it does not adequately meet the credit and deposit needs of low and moderate income communities.
Photo: brauerranch / Flickr
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