Square (SQ) Eyeing Banking Space, Reapplies For Bank License

Square, Inc.SQ has been eyeing the commercial banking sector for quite sometime now.

The company's re-application for special industrial loan company license ("ILC") with Federal Deposit Insurance Corp (FDIC) is in sync with the company's strategy to bolster banking initiatives.

With this move, the company is repeating the action after withdrawing the same in the mid of this year.

Notably, approval of the company's application will provide it a bank licence which in turn will aid it to penetrate the potential banking sector.

Moreover, ILC, which enables the non-traditional financial institutions to accept government insured deposits, will equip Square's services with deposit insurance feature.

Robust Banking Initiatives

Square applied for the same license a year back but had to withdraw it owing to regulatory issues. However, the company has come up with preparations in its second attempt to avoid further regulatory hindrance.

Along with its plans regarding infrastructure and governance of bank, the company has provided information and clear documents regarding products and services.

Square has strengthened its own end by building an office in Salt Lake City, UT. Further, it has announced Brandon Soto as the chief financial officer of its banking division. Notably, Soto previously served as an executive at Green Dot Corporation.

Notably, the company is planning to name its new division as Square Financial Services. The new division aims at helping the small and underserved businesses by providing them deposit accounts and business loans.

This strategic initiative and robust product and services portfolio is likely to bring significant disruption in the banking sector which does not bode well for the existing traditional banks.

Square, Inc. Revenue (TTM)

Square, Inc. Revenue (TTM) | Square, Inc. Quote

Rising Competition

Growing proliferation of fintech applications among the banking customers is creating a major scope for the tech companies to enter the banking sector.

Given this, companies like Alphabet's GOOGL Google, Amazon AMZN and Facebook are leveraging the power of artificial intelligence (AI), machine learning (ML), augmented reality (AR)/virtual reality (VR), data analytics and cloud technologies to make advances in this particular sector, in turn intensifying the battle.

Further, the massive database stored on each of the above-mentioned companies' platform provides them useful insight into consumer behaviour, spending and saving pattern, and most importantly their preferences regarding financial services. This remains crucial in customer data analysis in the banking space.

Apart from these tech giants, PayPal PYPL ,one of the biggest competitors of Square, is also in the race.Recently, the company announced a partnership with Itaú Unibanco Holding SA. This will enable PayPal to gain traction among the bank's customers by offering them services.

Nevertheless, the growing momentum of Square in the online payment space and its improved banking initiatives are likely to help it in gaining a competitive edge against these companies.

The company already offers small business loans through its robust Square Capital and its improving business loan processing remains a tailwind.

Currently, Square carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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