(5 September 2017 – Global) Square Payments has officially applied for a US banking license following months of industry speculation.
The move has re-started debate around the use of industrial loans charters (ILCs). These charters allow to carry out banking services but also enables them to continue providing other non-financial commercial services. Should it be granted, Square will be able to continue to operate its food delivery business Caviar as well as the provision of its payment terminals.
In contrast, traditional banks are prohibited from any activity unrelated to financial services.
As such, banks have raised concerns that this gives challengers seeking an ILC an unfair advantage while others say that an ILC places too much commercial power in the hands of a single organisation.
The move could potentially clear the way for Square to becoming a full fledge bank.
According to a representative from the point-of-sale payment service provide, the new bank will offer loans to small businesses, similar to its lending service Square Capital which is a partnership with Celtic Bank, as well as some deposit services. ILC status would enable Square to continue lending but without the reliance on a banking partner such as Celtic Bank.
According to its founder and Twitter CEO, Jack Dorsey, Square has to date lent more than US$1.8 billion to over 140,000 businesses, with an average loan size of US$6,000.
Since a 2014 moratorium on ILCs following Dodd Frank, mega-retailer WalMart has unsuccessfully applied for an ILC, while online lender SoFi’s application is still pending. Should it be successful it would be the first award of an ILC for more than a decade.