Shares of Square, Inc. (SQ - Free Report) climbed on Thursday after the mobile payment company announced its plan to open a bank. But can Square and other fintech startups really shake up the banking industry?
Jack Dorsey’s San Francisco-based mobile payment company is scheduled to submit an application to form a bank in Utah. The bank will be called Square Financial Services Inc. and is set to offer loans and deposit accounts to small businesses.
It seems clear that Dorsey, who is also Twitter’s (TWTR) CEO, has his sights set extremely high for the fintech company. Square stock jumped nearly 2% on Thursday to hover around $26.50 a share.
Mobile Payment Revolution
Square became popular for point of sale services geared towards small business. The company then invested in food ordering companies and began to offer small business loans through Square Capital, which allows merchants the opportunity to pay loans back gradually through automatic payments via a portion of their point of sale transactions.
But now it seems that Dorsey and Square are ready to venture into new, old school brick-and-mortar banking waters. Square’s banking move follows two other online tech-based financial startups.
Social Finance, Inc., which specializes in student loan refinancing and personal loans, applied for a bank charter in June. Mobile-banking startup Varo Money Inc. then applied for a banking charter in August. All three companies applied for these charters in Utah.
Salt Lake City has become the unofficial hub of industrial banks—institutions that make business loans and act like traditional banks in other manners, while still being a part of a company that also conducts other business operations.
Fintech and mobile payment companies are geared heavily towards Millennials, who do basically everything on their phones. However, this mobile generation still has to use traditional banks in order to have checking accounts and credit cards.
Square is taking the first step towards becoming a full-scale, legitimate FDIC insured bank. Dorsey’s company already boasts a market cap of $10.2 billion, and big banks might start to consider the possibility of a tech-based disruption to their industry in the somewhat near future.
Other Fintech Companies Gain
Square’s move helped send shares of mobile payment giant PayPal (PYPL - Free Report) , which also owns youthful peer-to-peer payment powerhouse Venmo, up over 1% on Thursday. Visa (V - Free Report) and Mastercard (MA - Free Report) , two credit card companies that have invested in the mobile payment and fintech sector, both hit new all-time intraday trading highs. Mastercard also upped its 2017 earnings projections Thursday.
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