SAN FRANCISCO–An increasing number of small merchants are turning to Square for loans.
Primarily known for its payment processing hardware and software, the company has been using all of the data it captures to create algorithms that allow it to quickly approve loans and credit lines.
As CUToday.info also recently reported here, Square has also been expanding into investments and savings products, and has also once again applied for a bank charter, as reported here.
The Wall Street Journal profiled Square’s expanded efforts to push into lending, sharing the story of Billy Joe Wilson, a food truck owner on the Texas Gulf Coast, who initially borrowed $5,000 from Square and then later borrowed another $150,000 to open a gastropub.
“Square, best known for its white credit-card readers that plug into smartphones, is part of a wave of the tech giants making inroads into the banking business,” noted the Journal. “The firm, run by Twitter Inc. co-founder Jack Dorsey, is already well-versed in financial services through its payments business."
Another Step into Banking
Last week, the San Francisco company took another step towards banking: It filed paperwork to open its own bank in Utah that would make loans to small businesses and offer deposit accounts to both companies and the general public.
Square is hardly alone. PayPal Holdings Inc. has extended more than $6 billion in small-business loans since 2013, using data it collected by processing payments for Internet retailers, while independent merchants that sell goods on Amazon have borrowed more than $3 billion from the e-commerce giant, according to the Journal.
Intuit Inc. has also started offering loans to businesses that use its Quickbooks software based in part on the data contained in their accounting statements. First Data Corp. now lets businesses that use payments devices from Clover, a Square competitor that it owns, take out loans based on their sales history, the Journal added.
According to the Journal, as part of a new Square program, individuals can now borrow up to $10,000 to finance a purchase made at a participating Square business. “Executives are also exploring ways to provide personal loans or lines of credit to the more than seven million users of Cash App, Square’s digital money-transfer service that rivals Venmo,” the report added.
To offload risk, Square sells the bulk of its loans to outside investment firms.