Square's quest to evolve past its original incarnation as a payments processing firm for small merchants is apparently set to expand into consumer lending. According to WSJ reports, CEO and co-founder Jack Dorsey has begun quietly circulating word among its SMB customers that it is willing to provide credit to their customer base.
The consumer lending pivot builds off of Square’s recent prepaid debit release and moves the company into more direct competition with the likes of PayPal, Affirm and Synchrony Financial. And, since Square intends to carry the loans on its balance sheet starting out, they will potentially be on the hook for consumer defaults, which have been on the rise of late. Some of that liability could be deferred in the future if loan volume grows sufficiently that the debt can be bonded and sold to outside money managers. Square already securitizes its SMB lending debt that way.
“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 mindset and approach to individuals as well.”
After a rocky start in the public markets, Square has seen its share price up 75 percent in 2017 as payments volume has continue to grow — as have its merchant servicing and data businesses.
Its shift to consumer lending will kick off this week with its new loan program online for consumers in six U.S. states: California, Colorado, Florida, New Jersey, New York and Virginia. The program will be offered to sellers who use Square Invoices. Consumers who opt in to the program will be given an option to finance invoices over a period of three, six, or 12 months.
“You will not see us doing car loans and mortgage loans,” said Jacqueline Reses, the executive in charge of Square Capital, the company’s lending arm. “We want to do things that are relevant to Square sellers.”
Approved borrowers will face an across-the-board annual percentage rate of 9.99% for loans that range from $250 to $10,000