Two applications for deposit insurance from de novo industrial banks – primarily serving customers through Internet services – were approved by the board of the federal bank deposit insurer Wednesday, with one application approved on a split vote.
The Federal Deposit Insurance Corp. (FDIC) Board approved applications de novo industrial banks from Square, Inc., of San Francisco and Nelnet, Inc., of Lincoln, Neb.
According to the FDIC, the bank chartered by Square — Square Financial Services, Inc. — will originate commercial loans to merchants that process card transactions through Square, Inc.’s payments system. The bank. will operate from a main office located in the Salt Lake City, Utah.
The bank chartered by Nelnet (Nelnet Bank), the agency said, will originate and service private student loans and other consumer loans. As an Internet-only bank, the FDIC said, Nelnet Bank will operate from a main office located in Salt Lake City, Utah area.
While the board voted unanimously to approve the application for Nelnet, it approved Square’s on a split vote. FDIC Board Member Martin Gruenberg, in voting against the application for Square, said that Square — unlike Nelnet — had failed to demonstrate sufficient profitability and would not be a “source of strength” for the new bank (a requirement for a bank holding company chartering a bank).
Both Nelnet Bank and Square Financial Services are awaiting approval for their charters from the Utah Department of Financial Institutions. The approval for deposit insurance requires a bank to be established within 12 months.
The FDIC said the Nelnet, Inc., was formed as a Nebraska corporation in 1978 to service federal student loans, and has since diversified its business activities to include, among other activities, education technology and payment processing. Square, Inc., the agency said, 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.