The Salt Financial City services, Square Financial Services, offer business loans and deposit products to sellers using the card reader and other point of sale services.
By running its own bank, Square ‘will be able to function faster, serving Square and our customers as we continue to work to create financial instruments that serve the subordinates,’ said Amrita Ahuja, CFO of Square Inc. said a statement. Square’s share closed nearly 5% on Tuesday.
Square Financial Services will be an industrial bank, which means it will offer limited financial services.
The company said it would begin underwriting and originating business loans for Square Capital’s existing loan product, previously provided in partnership with a third-party bank.
Square Financial Services aims to be “the primary provider of financing for Square sellers in the United States,” the company said.
Square uses the information it collects on the transaction history of sellers to facilitate loan insurance and payments, and says it offers a more streamlined application and approval process than many traditional financial institutions.
For payment technology providers, capital loans are a “logical extension” of their business, said Dayna Ford, an analyst at Gartner.
‘Unlike a traditional bank that has to rely on the performance report of a business, payment service providers have a constant, virtually real-time view of operating performance and perhaps the whole of their revenue stream,’ Ford said. “As far as risk management is concerned, there is a constant pulse check on how things are going with the business.”
This kind of data helps Square lend to businesses that can be turned down by a typical bank – the company says it has a better record of lending to women and minority businesses than traditional lenders.
The company said on Monday it did not expect the bank to have a material impact on its balance sheet, income or earnings in 2021 and that it would “sell loans to third-party investors and limit exposure to the balance sheet.”