The road to a banking license isn’t completely smooth for fintech companies, even if you’re Square.
The leading payments provider and payment facilitator last week confirmed reports that it had temporarily withdrawn its application to the FDIC for an industrial loan company license but plans to refile, according to Reuters.
“We have been engaged in constructive dialogue with the FDIC, and our decision to withdraw and refile was a procedural step in the review process that will allow us to amend and strengthen some areas of our FDIC insurance application,” Square told the outlet.
Square’s application for a license that would allow it to take deposits and offer loans is being closely watched as industry disruptors push the boundaries and blur the lines between fintech companies and traditional financial institutions.
Perhaps not surprisingly, news of Square’s application was not well received at the time by all of those traditional institutions. Independent Community Bankers of America protested the application, saying the license would enable the company to avoid the supervision that banks are subject to.
However, Rick Oglesby, president of AZ Payments Group, initially told PaymentFacilitator that, for Square, the move was a smart one considering the company’s ability to deliver products and differentiate its services. “The potential for disruption is high,” he said then.
Government agencies have been considering a number of regulatory frameworks to oversee nonfinancial companies looking to provide financial services to consumers. The Office of the Comptroller of the Currency introduced the idea of a special purpose national charter in late 2016.
That idea is also not without its detractors. It drew a lawsuit from the New York Department of Financial Services that was later dismissed, and its future within the current presidential administration appears uncertain.