Fintech Company Square Launches Its Own Bank, Acquires Tidal Music Platform

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Square (NYSE: SQ) announced on Wednesday that it is launching an in-house bank in order to expand its services. The company offers payment services for small businesses, especially low-cost terminals for accepting credit and debit cards. Square currently offers lending programs through Celtic Bank in Utah and debit cards through Sutton Bank in Ohio.

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CNN reports that the new bank will be called Square Financial Services. It has received its charter from the FDIC and the Utah Department of Financial Institutions. The bank is set up as an industrial bank, so it will offer limited services. It is not expected to have an impact on operations for 2021, and management says that it will sell off its loans to investors in order to reduce balance-sheet risk.

Most fintech companies that offer credit cards, debit cards or other banking services do so through private-label agreements with different banks that specialize in these services. At times, this can slow down customer acquisition because the partner bank and the fintech company may have different underwriting standards. Any new products offered have to go through the contract negotiation process, too.

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Square will be able to use its customer data to underwrite loans, which could expand access to capital for small businesses that do not meet traditional underwriting standards.

With its bank in place, Square is now in a stronger competitive position against its rivals, including PayPal (NASDAQ: PYPL) and Clover. These companies could start or acquire their own banks, of course.

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In a second day of events, Jack Dorsey, CEO of both Twitter and Square, announced that Square would be the majority owner in Jay-Z’s music streaming platform Tidal — a deal with a value of about $297 million. The iconic rapper will join the Square board once the deal closes, and Tidal will continue its operations independently within Square, according to the company’s press release.

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About the Author

Ann Logue is a writer specializing in business and finance. Her most recent book is The Complete Idiot’s Guide: Options Trading (Alpha 2016). She lives in Chicago.

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