Followers | 686 |
Posts | 142310 |
Boards Moderated | 35 |
Alias Born | 03/10/2004 |
![](https://investorshub.advfn.com/uicon/35728.png?cb=1539773763)
Sunday, October 07, 2018 9:52:50 AM
By: Motley Fool | October 5, 2018
But it's unclear whether it has the same competitive advantage as its business loans.
Square (NYSE:SQ) management told investors at the beginning of the year that it would put a bigger emphasis on financial services this year. The company's core financial service, Square Capital, offers loans to small merchants using Square's point-of-sale tools. The company is now expanding Square Capital to include consumer installment loans for purchases between $250 and $10,000 at Square merchants in 22 states.
The move could help grow sales for Square merchants, which would benefit Square's core payments-processing business, but it requires the company to take on risk. Not only will Square keep the installment loans on its balance sheet for now, without access to unique data on consumers like it has with its merchants, but Square's lending decisions also might not prove as lucrative with the new product.
Why Square Capital Works
Square Capital's business loans work because Square has unique data on its merchants. It knows what an average day of sales looks like, a retailer's inventory levels, whether sales are improving, and a ton more. That allows it to make good lending decisions without requiring a lot of overhead to review applicants, leading to a profitable business opportunity.
Management has expanded Square Capital with the help of partners. It started working with restaurant platform Upserve in 2016 to offer loans to more eateries. Last year, it opened Square Capital to restaurants on its Caviar platform that don't necessarily use its point-of-sale system. Both rely on the principle that Square gains access to data about a business and can make automated lending decisions based on that data.
That's not necessarily true for Square Installments, where the loan is made to the consumer. Square will pay the merchant the full value of the loan, and then collect as much data as it can on the consumer in order to determine appropriate terms for the loans. Loans range from 3 to 12 months and 0% APR to 24% APR.
But Square doesn't have any special data on consumers. It can take a peek at applicants' credit reports, but so can everyone else in the space. There's no additional data on purchase and payment history like competitor PayPal (NASDAQ:PYPL) has access to.
PayPal benefits from seeing both sides of a transaction. It can see what consumers are doing at the same time it can see what merchants are doing. That two-sided network has proven to be a great advantage for the company. PayPal can get a good idea of how a consumer normally spends online and how all consumers typically spend at a merchant, and make an informed lending decision.
PayPal built a portfolio of $7.6 billion in consumer loans over the years, which it recently sold to Synchrony. Despite its advantage in consumer data, PayPal still didn't want to hold the loans on its balance sheet. It's worth noting that Square doesn't hold its merchant loans on its balance sheet, and it might not hold consumer loans on its balance sheet at some point in the future.
Another step toward consumer banking services
Square Installments is the next step toward Square providing more services like a traditional bank, an area that CFO Sarah Friar said shareholders should expect Square to invest in.
But the big opportunity for creating consumer financial services like installment loans is the Cash App, which has 7 million monthly active users and growing. Square is increasing the utility of Cash App with things like direct deposits, bitcoin trading, and linking to Cash Card, a prepaid debit card.
Cash App provides an opportunity for Square to get a better glimpse at a consumer's overall financial profile. If that person receives direct deposits in the app and then pays for things using the Cash Card or by sending money to friends, Square can get a really good idea of that person's ability to pay back a loan. That could enable Square to see lower default rates on loans and increase profits, or offer better rates than competitors and take market share.
Square Installments is a start, but Square doesn't yet hold any unique competitive advantage in making lending decisions to consumers. That means it's taking on greater risk, and could have a harder time getting the loans off its balance sheet.
Read More »»»
• DiscoverGold
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
• DiscoverGold
Recent SQ News
- More than Half of Americans Turn to Buy Now, Pay Later During Financially Stressful Times • Business Wire • 06/26/2024 01:29:00 PM
- New Square Survey Finds 1 in 3 Consumers are in an Open Relationship with Their Hair Stylist • Business Wire • 06/26/2024 04:01:00 AM
- Afterpay Launches New Brands as Consumers Turn to BNPL to Reduce Summer Spending Stress • Business Wire • 06/18/2024 01:00:00 PM
- Square 50 Awards Program Returns To Recognize the Most Impactful Businesses Around the World • Business Wire • 06/18/2024 07:01:00 AM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 09:24:08 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 09:23:04 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 09:21:34 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 05/23/2024 09:20:02 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/22/2024 09:01:40 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/22/2024 08:03:53 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/21/2024 10:19:11 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/21/2024 10:18:24 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/21/2024 10:17:42 PM
- Form 144 - Report of proposed sale of securities • Edgar (US Regulatory) • 05/21/2024 10:16:42 PM
- Younger U.S. Consumers Are Supporting Small Medium Businesses Through Afterpay • Business Wire • 05/14/2024 01:00:00 PM
- Weekly Surge for Render and Toncoin, US Bancorp Expands Bitcoin ETF Investments, and More in Crypto • IH Market News • 05/10/2024 07:32:06 PM
- Block, Inc. Announces Upsize and Pricing of $2.0 Billion Offering of Senior Notes • Business Wire • 05/06/2024 11:46:00 PM
- Bitcoin Hits 1 Billion Transactions, Vodafone Turns Smartphones into Digital Wallets, and More Crypto News • IH Market News • 05/06/2024 06:13:29 PM
- Perficient Stock Soars 52.9% Post-Acquisition; Luminar Declines 10% Amid Workforce Cutbacks, and Other News • IH Market News • 05/06/2024 12:09:00 PM
- Block, Inc. Announces $1.5 Billion Offering of Senior Notes • Business Wire • 05/06/2024 11:55:00 AM
- Bitcoin Surges Post Jobs Report, Coinbase Reveals $1.2 Billion 1Q Net Profit, and More Crypto News • IH Market News • 05/03/2024 07:26:30 PM
- Amgen, Bock Up; Cloudflare, Expedia Weak • IH Market News • 05/03/2024 01:12:08 PM
- Block Announces First Quarter 2024 Results • Business Wire • 05/02/2024 08:10:00 PM
- Block Innovates Bitcoin Mining, DOJ Proposes 3-Year Prison for Changpeng Zhao, and More Crypto News • IH Market News • 04/24/2024 05:50:55 PM
- Apple Terminates 614 Employees, Disney Unveils June Crackdown on Password Sharing, and More Updates • IH Market News • 04/05/2024 11:38:57 AM
VAYK Exited Caribbean Investments for $320,000 Profit • VAYK • Jun 27, 2024 9:00 AM
North Bay Resources Announces Successful Flotation Cell Test at Bishop Gold Mill, Inyo County, California • NBRI • Jun 27, 2024 9:00 AM
Branded Legacy, Inc. and Hemp Emu Announce Strategic Partnership to Enhance CBD Product Manufacturing • BLEG • Jun 27, 2024 8:30 AM
POET Wins "Best Optical AI Solution" in 2024 AI Breakthrough Awards Program • POET • Jun 26, 2024 10:09 AM
HealthLynked Promotes Bill Crupi to Chief Operating Officer • HLYK • Jun 26, 2024 8:00 AM
Bantec's Howco Short Term Department of Defense Contract Wins Will Exceed $1,100,000 for the current Quarter • BANT • Jun 25, 2024 10:00 AM