WASHINGTON–The FDIC has granted bank charters to two companies, one of which is a well-known fintech and payments provider.
The FDIC has approved the deposit insurance application submitted by San Francisco-based Square, Inc. to create a de novo industrial bank.
The bank, Square Financial Services, Inc., will originate commercial loans to merchants that process card transactions through Square, Inc.'s payments system. Square Financial Services, Inc. will operate from a main office located in the Salt Lake City, the FDIC said.
Square, Inc., was formed in 2009 as a payment services provider to enable businesses to accept card payments. The platform has been expanded to include point-of-sale payments, financing, and other services.
Square Financial Services is now awaiting approval from the Utah Department of Financial Institutions. The approval for deposit insurance requires the bank to be established within 12 months.
Nelnet Also Approved
In addition, the FDIC has also approved an application from Lincoln, Neb.-based Nelnet, Inc. The proposed Nelnet Bank would be wholly owned by Nelnet, Inc. and would also be chartered by the Utah Department of Financial Institutions. The FDIC said the proposed bank would originate, refinance, and service private student loans and unsecured consumer loans nationwide.
“Establishment of the bank would enable the applicant and proposed parent company, Nelnet, Inc., to expand its education-oriented lending and offer additional consumer credit products and deposits,” the FDIC said.
According to the agency, staff found Nelnet satisfied each of the statutory factors required for approval, subject to certain conditions. One of the conditions would require the proposed bank to maintain levels of capital that are significantly higher than typical FDIC-insured banks.
Additional Requirements
Additional conditions would require the bank, the bank's parent company (Nelnet, Inc.), and Nelnet's controlling shareholder to execute a Capital and Liquidity Maintenance Agreement (CALMA) and a Parent Company Agreement (PCA).
“These agreements contractually obligate the proposed bank's parent to serve as a source of financial strength for the bank and require the parent company to ensure that the bank maintains sufficient capital and liquidity and to inject capital or liquidity if the bank's capital or liquidity falls below a certain threshold,” the said FDIC Chairman Jalena McWilliams. “The PCA would require the bank's parent company to consent to examination, reporting, recordkeeping, and other provisions designed to provide safeguards to protect the bank and the Deposit Insurance Fund.”