By Jeff Domansky, March 3, 2021
Payment services company Square Inc. officially launched its bank yesterday. A year after Square Financial Services (SFS) received charter approval from the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions.
Headquartered in Salt Lake City and operating as a separate division, SFS will initially provide loans and deposit services for Square merchants. Watch for that to evolve quickly as part of a more significant financial services strategy.
Jack Be Nimble, Square Be Quick
Chairman and CEO of Square, Jack Dorsey, often takes heat from traditional analysts. they haven’t liked him serving as CEO for Square and Twitter. Twitter challenges aside, there’s no question Dorsey has made waves in the payments and fintech space.
Analysts and investors certainly can’t criticize Square’s financial performance.
Square showed strong growth in 2020 as revenue doubled from $4.71 billion to $9.5 billion. Since going public in November 2015, the company has delivered more than 600% revenue growth through its merchant payment services and the new fast-growing Cash App service for individuals.
The much-anticipated Square bank widens opportunities for the company to move quickly in the competitive fintech services marketplace.
“Bringing banking capability in-house enables us to operate more nimbly, which will serve Square and our customers as we continue the work to create financial tools that serve the underserved,” said Amrita Ahuja, Square, Inc. Chief Financial Officer and Executive Chairwoman of the board of directors for Square Financial Services.
Don’t bet against Dorsey.
Targeting Underserved Businesses
The company noted 58% of loans through Square Capital go to women-owned businesses, compared to 17% of traditional loans, and 35% of its loans support minority-owned businesses, compared to 27% of conventional loans.
Traditional banks should pay attention. Expect to see new financial products developed quickly to target those markets traditional banks can’t or don’t serve.
Square Financial Services said it would continue its practice of selling its loans to third-party investors to limit its balance sheet exposure. That should reassure analysts and investors.
It’s a Square World
Square has come a long way since starting with a little white Square payment card reader despite intense competition in payments and financial services. It’s also an early adopter in exploring the potential of cryptocurrency in payments and business applications.
Nimble, fair and square are part of its DNA. Square’s new payment card readers help sellers accept contactless cards, chip credit cards, Apple Pay and Google Pay. Its innovative point-of-sale technology helps sellers track inventory, data, employees, and customers.
The company continues to invest heavily in both its merchant services and Cash App ecosystems. Dorsey said the company will double its sales team to capitalize on opportunities.
In a recent earnings call, CFO Ahuja said, “In 2021, we are investing for long-term profitable growth. Given the opportunity ahead of us, we expect to increase non-GAAP operating expenses, excluding risk loss by 41% year-over-year or an incremental $800 million to $900 million compared to 2020 levels.
Analysts covering Square said investors should see annual growth of 50% over the next 2 to 3 years.
You can expect the same innovation as its banking services accelerate, and that should be good news for many underserved businesses.
Other stories on Square from PaymentsNEXT:
Canada gets Square with new payments terminals
Square Installments gives small business customers easy payments plan
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