What Financial Institutions Should Know About Square Banking

Checking, savings and lending for small firms have been grouped under 'Square Banking' label as the former payments specialist further integrates business and financial services.

The speculation and predictions about Square Banking are over — for a while. Now traditional small business banking institutions will see how well they can compete as Square Inc.’s Utah industrial bank has hit the street with three key small business financial products.

It shouldn’t have come as a surprise that one of the first places that Square Inc. broke its banking news was on its Twitter account, @Square. After all, Jack Dorsey, the social media platform’s founder, also founded Square. The company began in 2009 as a payments fintech relying initially on a plastic dongle that plugged into mobile devices.

In mid-July 2021 Square rolled out a business savings account with a twist and a checking account that permits instant access to deposits from sales. The company simultaneously re-branded its existing lending capabilities as Square Loans.

twitter introducing Square Banking launch

Some services are available directly from the company, rather than through a banking as a service arrangement, now that it owns an industrial bank, called Square Financial Services, based in Salt Lake City. Having obtained federal deposit insurance via FDIC approval, the industrial bank went live in March 2021. As of the end of March, the latest call report available, it has assets of $66 million.

Feet in Both Worlds?

Square’s industrial bank functions as a subsidiary of the parent company and on the Square Banking website the company explicitly states that it is not a bank.

By contrast, when LendingClub bought Radius Bank, it combined with the bank and is now LendingClub Bank.

( Podcast: Why LendingClub is Well Positioned for Future Growth )

Square Banking is intended to cater to the needs of small businesses and their reliance on cash flow, according to Christina Riechers, Head of Product.

“Historically, small businesses have had to contend with numerous hurdles while trying to access vital financial services that are often readily available to larger companies,” says Riechers. “We’re introducing fair, accessible financial services that connect directly with our sellers’ payments, helping them unlock instant access to their sales, automate their savings, and receive personalized financing offerings.”

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Taking a Closer Look at Square’s Three-Faceted Banking Lineup

What Square has launched is clearly an ecosystem play, not a trio of plain vanilla products bolted together. They interface with the Square system for small business owners.

Square Savings is designed to automate an element of savings by transferring a percentage of every sale a firm makes through Square’s payments acceptance services into the savings account. The accounts can accommodate folders to enable depositors to separate their balances for multiple savings goals and needs. The accounts have no fees, no minimum opening balances and no ongoing balance requirements.

Square Checking is intended to build on the free Square Debit Card accounts that the company introduced in early 2019. The number of Square Debit accounts rose by 140% from 2019 to the end of 2020. Square Checking is being offered in partnership with Sutton Bank and is designed to enable them to immediately access funds made via card sales. Square Checking will have no overdraft fees (overdrafts are not currently permitted), recurring fees or account minimums. Transfers between the checking and savings accounts will not incur a fee and the company indicates there will be an app soon for depositing checks.

Square Loans builds on the Square Capital program and features tailored credit offers that can be paid automatically from sales proceeds. Customers will be able to access the credit via their checking account once the loan is approved.

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What Has Dorsey Got Just Over the Horizon?

While this is a big development for the banking field, something even beyond this may be in the works. On July 15, five days before the Square Banking launch, Jack Dorsey tweeted this message:

“Square is creating a new business (joining Seller, Cash App, & Tidal) focused on building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services. Our primary focus is #Bitcoin. Its name is TBD.”

Tidal is a global music and entertainment platform recently acquired by Square. Seller refers to Square’s seller services.

Sounds like a far out combination. But then there was a time no one knew what a dongle was, either. Or, for that matter, a tweet.

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