Square hopes to get an edge with its new banking services by helping small-business owners who use personal checking accounts to manage business payments.
The San Francisco-based payment company on Tuesday launched a new business bank account that combines Square Checking, Square Savings and Square Loans accessible through a mobile-optimized web browser.
Called Square Banking, each user's existing Square debit card, which is used to spend from their merchant balances, will be converted to a checking product with a new account and routing number. The change makes it easier for sellers to treat Square Checking like a business bank account to receive funds from multiple sources, said Christina Riechers, Square Banking’s head of product.
These sellers increasingly have funds coming in from other channels like Amazon and Etsy, and they often lean on personal checking accounts to manage these revenue flows. “It’s hard to know how your business is doing when funds are commingled, and having a separate checking account number will make it easier for merchants to consolidate money in one account dedicated to their business,” Riechers said.
Square's debit card has been the first business debit card for 54% of the company's debit card users, Richers said, adding the card acts as a bank account to avoid the cost and complication of setting up separate bank accounts for business and personal use. Previously, Square's free Mastercard-branded debit card was optional, but now all new Square users who sign up for Square checking will receive the debit card.
Square Card, launched in early 2019, pulled from funds within Square Balance, where sellers' revenues accumulated. Square Card and Square Balance are now combined in Square Checking, where sellers' revenues accumulate. Every new Square Checking customer will receive the newly renamed Square Debit Card. The Visa-branded debit card attached to Square's Cash app is separate from the debit card that's part of Square's new business bundle.
Square Savings is the company’s new FDIC-insured savings account, which has customizable folders to save money with prompts to earmark funds for specific purposes like tax payments or emergency expenditures. The savings account has a 0.5% APR.
The consolidated product bundle will also allow sellers to pay employees instantly without the need to debit an external account, Riechers said. Square works with Marqeta and its partner Sutton Bank to issue the Square debit card.
Merchants will soon be able to use a remote check deposit feature within the Square Point of Sale app, and they may also move funds between the checking and savings accounts instantly. There are no fees and no account minimums for either account, Square said. ATM withdrawals are subject to Mastercard's ATM network fee.
Square Capital — Square’s longtime merchant lending product — has been renamed Square Loans. As before, sellers can set up automatic loan repayment through a percentage of daily Square sales. In the near future, users will also be able to access those funds via Square Checking. Users must sign up with Square to use its banking services, but payment processing isn't required, Riechers said.
Square isn't worried that transforming sellers' debit cards into checking accounts could dent purchase volume or reduce the interchange Square earns through its debit card.
“If anything, we expect to see more usage of the debit card if sellers use the new account and routing numbers to route more money from all their business channels into Square Checking,” Riechers said.
Square has seen strong growth of its debit card volume in the last two years and the pandemic further accelerated that trend, according to Riechers. “Stored balances on Square debit cards grew 250% during the last year, which is incredible given all the havoc wreaked on small businesses,” she said.
Square in March opened
The new bundle is an early look at how Square can take advantage of its industrial bank license to add banking services in competition with technology firms like Stripe and PayPal; and traditional payment processors.
