There’s been a lot of questions about whether or not Square aspires to become a bank. Now that speculation can be laid to rest. Square will file an application to become an industrial loan company (also referred to as industrial banks) with the Federal Deposit Insurance Corporation.
TechCrunch has learned that the application will be submitted tomorrow, after which the FDIC will decide when it becomes publicly available.
Square’s intention to apply was first reported by the American Banker and then confirmed by the Wall Street Journal, which interviewed Square Capital chairman Jacqueline Reses. Reses will also chair the new bank, which WSJ reports will be named Square Financial Services Inc. and capitalized with $56 million in cash. Its acting CEO will be Lewis Goodwin, who recently joined Square after serving as chief executive of Green Dot Bank.
A Square spokesperson says that the new bank will offer loans to small businesses, similar to what Square Capital already does in partnership with Celtic Bank, and deposit products. The license means that Square will be able to offer loans on its own without relying on a partner bank to issue them. Square says that it has lent more than $1.8 billion to over 140,000 businesses, with an average loan size of $6,000.
An industrial loan company is licensed to do many of the same things as traditional banks, but can be owned by a business that offers non-financial services, which bank holding companies are forbidden to do. In Square’s case, this includes Caviar, its food delivery service, and the sale of credit-card processing hardware like its signature dongles.
ILCs are controversial, however, because some regulators believe they blur the lines between banks and commercial firms too much. A moratorium was placed on ILCs under the Dodd-Frank Act to give the government time to examine their impact on the banking industry, but it ended in 2013. Square’s ILC application comes after one filed by online lending startup SoFi earlier this year. If SoFi’s license is granted, it will become the first company to be granted an ILC charter in a decade.
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