As the fintech sector continues to grow exponentially worldwide, the mobile banking space is sure to grow in tandem becoming increasingly crowded and more competitive. While there have been a few big platforms ruling the industry for the past decade, such as PayPal and many commercial banks such as AIB and Bank of Ireland launching their own mobile apps, it is no surprise that financial services company Square is jumping into the field. Square Inc. is an American based company that is perhaps most widely known for their mobile payment platform CashApp, which allows users to link their bank accounts to make easy payments to friends, families, or even merchants who choose to accept. CashApp’s biggest competitor in its own space is Venmo, owned by PayPal, which offers a very similar service of easy mobile payment transactions. Although Venmo got a head start over CashApp, the latter was able to catch up and even recently surpass Venmo in downloads, which is why Square’s announcement to create a banking platform is all the more interesting.
This isn’t a common venture for a company starting out as fintech, as rarely do these companies file for bank charters, and instead typically choose to join forces with an already established third-party bank to provide their services to their now joint customer bases. However, Square has made this decision as it will allow the company to “operate more nimbly, which will serve Square and our customers as we continue the work to create financial tools that serve the underserved,” said by Square Inc. Chief Financial Officer Amrita Ahuja. This newly established bank may not be the type of commercial bank you’d typically think of though, as Square Financial Services will serve as an industrial bank, which means it will only offer limited financial services. The first service they plan to implement will be originating business loans for their already existing lending product, and will expand from there.
If this operation goes according to plan, this can be the move that cements Square highly above PayPal, which also provides merchant services and lendings through partnerships with banks. As with many fintechs in the mobile banking space, Square has said that they use data on users’ transactions to offer advice on future potential loans and payments. This will allow anyone who uses these platforms to receive extremely personalized financial advice, and whichever company is able to perfect it first will gain a huge advantage over competitors. Square has stated that they don’t expect to have any revenue in 2021, but will instead use this time to perfect their service as well as “sell loans to third-party investors.”