March 19, 2020
Square, Inc. is all set to start its bank “Square Financial Services” in 2021 and open it to small business customers. It recently secured conditional approval from FDIC for its special type of bank, also known as ILC (Industrial Loan Company). The bank is based in Utah since Square has received charter approval earlier from the Utah Department of Financial Institutions. An ILC is a form of a corporation owned by non-banks that can accept deposits, make loans, and conduct other activities usually reserved for banks.
This ILC charter approval by FDIC is significant for several reasons owing to the kind of outcomes this ruling produces. One major outcome: it may show a new path for other FinTech companies to attempt operating full-service banks if they are interested.
For years, the ILC applications filed by non-banking businesses were surrounded by controversy involving The Bank Holding Company Act of 1956. The law was implemented, in part, to regulate and control banks that had formed bank holding companies to own both banking and non-banking businesses. With the recent FDIC ruling, Square will be able to sidestep th ...