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Square refiles bank charter application

Square Inc. is refiling its bank application with the Federal Deposit Insurance Corp. on Dec. 19.

After first applying in 2017 to create an industrial loan company, or ILC, called Square Financial Services Inc., the fintech company withdrew its application in July to improve some aspects of the filing. Many parts of the application remain unchanged: The bank will be led by Lewis Goodwin, former CEO of the banking unit at payments peer Green Dot Corp., will be capitalized with $56 million in cash from Square and will not open any physical branches.

Square has firmed up its proposed management team by adding Brandon Soto, another former executive of Green Dot, as CFO. Square's previous filing did not have an executive in that position. It also detailed plans to offer a transactional account with an associated debit card, as well as prepaid debit cards, savings accounts and time deposits.

The refiling was expected, said Jackson Mueller, an associate director at the Milken Institute's Center for Financial Markets.

Different expectations "from the new head of the FDIC, Jelena McWilliams, led to Square pulling its original application with the intent to refile," he said in an email. "McWilliams has been at the helm for some time now, and given her recent views on innovation in the banking system, it's not surprising Square refiled."

Square was one of several fintech companies to have rescinded applications to open a banking unit. In October 2017, nonbank student loan refinance company Social Finance Inc. pulled its application to open SoFi Bank. Nelnet Inc. withdrew its application in September, just three months after applying to create Nelnet Bank.

In August, the Independent Community Bankers of America asked the FDIC to deny the federal deposit insurance application for Nelnet Bank's proposed ILC and impose a two-year moratorium on such future applications.

The most recent ILC approved by the FDIC was in June 2008.

In its application, the small-business-focused Square says that granting it a banking license will expand access to financial services to companies that are currently underserved. Square unit Square Capital LLC has made a total of more than $3.5 billion in loans as of the third quarter of 2018, and more than 70% of borrowers said they did not seek or were unable to obtain financing from another source, according to Square's April 2018 survey.

Jacqueline Reses, head of Square Capital and proposed chairperson of the bank, said the company will work closely with the FDIC and the State of Utah Department of Financial Institutions as they review its application.

"Square Capital is uniquely positioned to build a bridge between the financial system and the underserved, creating access for small businesses to both capital and the economy," Reses said.