Square first submitted an application to the Federal Deposit Insurance Corporation (FDIC)to become a deposit-taking bank via an Industrial Loan Company (ILC) license in September last year.

Industrial loan charters give companies permission to carry out banking services but also enables them to continue providing other non-financial commercial services - a practice that is denied to fully-licensed banks.

Square's attempt to open a back door to the banking industry was fiercely opposed by the Independent Community Bankers of America (ICBA), which protested to the FDIC that the company's application was designed to avoid legal prohibitions and restrictions under the Bank Holding Company Act.

In July, Square withdrew its application in order to address issues raised by state regulators on areas including the company’s products and services, as well as the proposed bank infrastructure and governance.

If approved, the new division will be Utah chartered and branded as Square Financial Services. It will be led by Brandon Soto, a former executive at Green Dot Corporation.

The National Association of Federally-Insured Credit Unions (NAFCU) President and CEO Dan Berger restated industry opposition to Square's application.

“If Square, or any other fintech company, wants to apply to become a bank then they should do so without skirting regulatory responsibilities through a gaping loophole in the law,” he says. “The current ILC regime was never intended for fintechs to enter the banking world with an unlimited scope. Instead of letting fintechs exploit the ILC process, policymakers should pause, review and ultimately pick an appropriate regulatory regime, which in many cases could be a specific fintech charter. In many other cases, the provision of financial services should be left to consumer friendly depository institutions like credit unions.”