Mobile-payments company Square (NYSE: SQ), which has evolved into a financial-technology company offering a wide array of services to businesses and consumers, surprised investors last September when it revealed it had submitted an application to form a wholly-owned bank. If approved, Square's financial offerings would expand and give the company more flexibility.

Now we learn (via American Banker) that Square recently withdrew its banking application with the Federal Deposit Insurance Group (FDIC). But this isn't because Square is backing out on its effort to form a depository bank of its own. On the contrary, some constructive conversations with the FDIC led Square to pull its application as part of an effort to improve and resubmit it.

Given Square's success thus far at continually launching new products and services and growing them into meaningful aspects of its business, Square's initiative to form a bank is a narrative worth following -- and this looks like promising progress.

Square's new platform for restaurants -- one of the company's many new products launched since 2014. Image source: Square.

Refiling

Square confirmed the withdrawal of its application with the FDIC to form a bank with an "industrial loan" structure -- which would allow for more flexibility beyond just banking -- along with its plans to refile, to American Banker. "We have been engaged in constructive dialogue with the FDIC," a Square spokesperson explained, "and our decision to withdraw and refile was a procedural step in the review process that will allow us to amend and strengthen some areas of our FDIC insurance application."

Supporting the case that Square still plans to try to become a bank, the company's application with the Utah Department of Financial Institutions is still active, according to American Banker.

When Square submitted its banking application last year, the company said it's a process that typically takes a year. Refiling could delay the process but ultimately increase the likelihood of approval.

Why becoming a bank could benefit shareholders

Square CEO Jack Dorsey gave investors some insight into the reasoning behind the company's desire to form a bank in its third-quarter earnings call (via an S&P Capital IQ transcript) last year.

[The industrial loan banking structure] represents an efficiency for us. It allows us to go faster, create more efficiencies in the model, but also allows us to just take a different tack on our business and make sure that we're constantly doing the right thing. We can bring the lending capabilities of a bank in-house, allowing us to be more verticalized and to make stronger and faster decisions.