Square Tries Consumer Lending

by Raymond Pucci 0

 Square continues to go beyond payments processing by offering related services to both merchants and consumers alike. According to the following article, the fast growing fintech has started to offer consumer lending services in certain U.S. markets.

Square Inc., SQ -1.17% the technology company best known for processing payments for small merchants across the U.S., is now angling to lend to consumers, too. This week, the San Francisco-based firm run by Twitter Inc. co-founder Jack Dorsey started telling some of its small-business clients that it would soon be willing to provide credit to their customers. The initiative, which follows the launch of a consumer-oriented Square prepaid debit card, is part of a broader push from the company to branch out beyond its original products—small, white credit-card readers that merchants plug into a mobile phone or tablet.

Offering consumers financing options for their purchases brings Square into competition with financial-technology companies such as PayPal Holdings Inc., Affirm Inc. and GreenSky LLC, as well as consumer lenders like Synchrony Financial that offer credit cards tied to specific retailers. It also means Square will be on the hook for consumer defaults, which have recently ticked up at some online lenders and credit-card companies. Square plans to hold the consumer loans on its balance sheet, but as volume grows it could look to sell loans to outside money managers, as it does with its small-business credits unit.

“Our first eight years were really focused on sellers,” said Mr. Dorsey in an interview earlier this year. “I think a big part of our future is applying that same sort of mind-set and approach to individuals as well.”


Relationships and data from the payments business have also helped Square sidestep some of the challenges that other financial-technology startups have faced in business lending. Starting this week, loans in Square’s new program will be made available to residents of six states—California, Colorado, Florida, New Jersey, New York and Virginia. Plans to roll the program out nationwide are unclear.

Alternative lending at the point-of-sale (POS) apart from the usual credit card options is not a new opportunity. Many retailers opt to have backup lenders jump in when a shopper’s credit card transaction is rejected at the POS, typically for higher priced items like furniture, appliances, or electronics. Now Square is looking to enter the field by targeting consumers who shop at Square’s large merchant client base. It complements the Square Capital lending program to merchants. If Square can be successful at consumer lending, this will be another way to advance beyond the commodity-type pricing world of payments processing.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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