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Photo Illustration: Sarah Grillo/Axios. Photo: Burhaan Kinu/Hindustan Times via Getty Images

Jack Dorsey's Square, the upstart payment processor for smaller merchants, got the OK to open a bank, after nearly three years of trying.

Why it matters: Square applied to set up an industrial loan company — a "lite" bank that isn't subject to Federal Reserve supervision — which hasn't been approved in more than a decade. It may open the floodgates for companies that want all the perks of being a bank without the same amount of oversight.

Driving the news: Square Financial Services, as the fintech's bank is to be called, will be based in Utah, and — when it opens in 2021 — will collect deposits and lend money to merchants that use Square devices.

  • The approval comes at a crucial time for Square, as many of its customers are the kind of small businesses that have been forced to shutter because of the coronavirus.

The conditions placed on Square — by the FDIC and the Utah Department of Financial Institutions — are way tougher than those of typical banks. But they are still answering to fewer regulators.

  • Its initial capital level will be $56 million, "significantly higher" levels of capital than other banks, per the FDIC.
  • The FDIC will also have the right to examine Square Financial Services' parent company.

Of note: The FDIC signed off on educational company Nelnet's request to launch a bank.

What they're saying: "Nonbanks have always wanted deposit insurance," Thomas Vartanian, a longtime banking lawyer who heads a financial regulatory institute at George Mason University’s Antonin Scalia Law School, tells Axios.

  • "If you can take deposits at a very low cost, that's an enormously cheap way to fund yourself," he says, as opposed to regular companies that go into the markets and borrow money at more expensive rates.

The bottom line: Applications like Square's caused an uproar in the banking industry more than a decade ago. Remember when Walmart tried to be a bank? Traditional banking institutions howled about the potential consolidation of power in a single company.

  • But Square's approval marks the beginning of a friendlier approach, reopening the doors for other tech companies to open their own banks.

Go deeper

Caitlin Owens, author of Vitals
18 mins ago - Health

Most Americans are still vulnerable to the coronavirus

Adapted from Bajema, et al., 2020, "Estimated SARS-CoV-2 Seroprevalence in the US as of September 2020"; Cartogram: Andrew Witherspoon/Axios

As of September, the vast majority of Americans did not have coronavirus antibodies, according to a new study published in JAMA Internal Medicine.

Why it matters: As the coronavirus spreads rapidly throughout most of the country, most people remain vulnerable to it.

Trump set to appear at Pennsylvania GOP hearing on voter fraud claims

President Trumpat the White House on Tuesday. Photo: Chip Somodevilla/Getty Images

President Trump is due to join his personal lawyer Rudy Giuliani in Gettysburg, Pennsylvania, Wednesday at a Republican-led state Senate Majority Policy Committee hearing to discuss alleged election irregularities.

Why it matters: This would be his first trip outside of the DMV since Election Day and comes shortly after GSA ascertained the results, formally signing off on a transition to President-elect Biden.

Scoop: Trump tells confidants he plans to pardon Michael Flynn

Photo: Alex Wroblewski/Getty Images

President Trump has told confidants he plans to pardon his former national security adviser Michael Flynn, who pleaded guilty in December 2017 to lying to the FBI about his Russian contacts, two sources with direct knowledge of the discussions tell Axios.

Behind the scenes: Sources with direct knowledge of the discussions said Flynn will be part of a series of pardons that Trump issues between now and when he leaves office.