Square Gets Green Light to Open a Bank
March 18 2020 - 6:51PM
Dow Jones News
By Peter Rudegeair
Federal and state banking regulators approved an application
from financial-tech company Square Inc. to start its own bank in
Utah.
The bank, Square Financial Services, Inc., is expected to launch
in 2021 and will be supervised by the Federal Deposit Insurance
Corp. and the Utah Department of Financial Institutions, the
company said on Wednesday. Square Financial Services will offer
small-business loans to merchants that use Square devices to
process their payments.
Square's banking effort started over 2 1/2 years ago and was
marked by opposition from some bank lobbyists and community groups,
who objected to Square's decision to pursue a charter for a
so-called industrial loan company.
Industrial-loan companies enjoy many of the same privileges as
traditional banks -- but can be part of corporations that do things
other than banking, making them exempt from oversight by the
Federal Reserve. In 2007, a wave of similar opposition prompted
Walmart Inc. to abandon its effort to form an industrial-loan
company.
In order to secure regulators' approval, Square Financial
Services had to agree to a number of conditions, including
maintaining "significantly higher" levels of capital than other
banks and consenting to have its parent company, Square, examined
by the FDIC.
Even with those concessions, Square didn't secure the unanimous
consent of regulators. FDIC board member Martin Gruenberg voted
against Square's application, arguing that Square had not been
profitable historically and couldn't serve as a source of financial
strength to its bank.
"Square has yet to demonstrate its viability during a downturn
in the economic cycle. In fact, it has failed to demonstrate its
viability during the upside of an economic cycle," Mr. Gruenberg
said in a statement.
Nelnet Inc., a Nebraska-based servicer of student loans, also
received approval to start an industrial-loan company this
week.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
March 18, 2020 18:36 ET (22:36 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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