The San Francisco company's bank opening continues its diversification from strictly payment processing to broader financial services.
Square recently traded at $254.19, up 5.47%. The shares have more than tripled over the past year amid the explosive growth in e-commerce.
Square Financial Services, based in Salt Lake City, will "offer business loan and deposit products, beginning with underwriting and originating business loans for Square Capital’s existing lending product,” the company said.
“Moving forward, Square Financial Services will be the primary provider of financing for Square sellers across the U.S.”
The company sees an advantage in expanding its offerings. “Bringing banking capability in-house enables us to operate more nimbly, which will serve Square and our customers as we continue the work to create financial tools that serve the underserved,” Chief Financial Officer Amrita Ahuja said in a statement.
“Square Financial Services will continue to sell loans to third-party investors and limit balance-sheet exposure,” the company said.
“We do not expect the bank to have a material impact on Square’s consolidated balance sheet, total net revenue, gross profit, or adjusted [earnings before interest, taxes, depreciation and amortization] in 2021.”
Last week, Oppenheimer analyst Jed Kelly raised his price target for Square by a third, to $280 from $210, and affirmed an outperform rating.
He acted after Square posted stronger-than-expected earnings for the fourth quarter. “We are incrementally bullish on management’s strategy to invest in its sales force to move upstream and target more midmarket sellers,” Kelly wrote in a commentary.