US mobile payments firm Square is moving deeper into traditional finance territory as it builds out its lending division, Square Capital, with the launch of bank loans for merchant customers. The firm initially started offering cash advances for merchants in 2014 in a bid to diversify its revenue model and push closer to profitability. These new loans will be issued by Celtic Bank and repayments are made as a fixed percentage of merchants’ daily card sales. There are early repayment options so that merchants can pay off their loan faster if they wish.
In the firm’s full year earnings, released earlier this month, Square said it had offered more than USD400m across 70,000 advances in 2015, with USD150m of that coming in the fourth quarter. The firm does not break out how much revenue Square Capital drove last year, folding this division into its Software and Data unit. That unit drove USD58m in full year revenues, out of just shy of USD1.3bn net revenues so it doesn’t look like it’s driving a significant volume of the firm’s turnover just yet.
Square Capital now offers flexible loans to small businesses! One tap & money is in account next day. No bank visit. https://t.co/VJM2oUq9V8
— Jack (@jack) 28 March 2016
Square Capital is headed up by Jackie Reses, who Square poached from Yahoo! last year to shore up its financial expertise muscle. At Yahoo Reses she served as chief development officer where she focussed on revenue and product partnerships, strategic acquisitions, and operational and people transformation. Also joining Square at that time, when concerns were growing over CEO and co-founder Jack Dorsey’s ability to run Square and Twitter at the same time, were Henry Domenici from Morgan Stanley and Ted Kosev from Amazon.
Square’s move into bank loans comes just weeks after the firm added a new feature to its peer-to-peer payments tool, Square Cash that means customers can now store money inside the app for the first time. The new Cash Drawer feature lets users stash cash they receive inside the app or transfer money in from directly from their own bank account, meaning it now sits somewhere between a digital wallet and a current account. This isn’t Square’s first foray into this space of course, launching and then shuttering Square Wallet back in 2014 and suggests Dorsey isn’t done with the wallet idea.
Over in Europe, iZettle is also building out from its core payments business in the direction of lending. Like Square, the Stockholm-headquartered firm made a name for itself as a mobile payments company that lets micro businesses like hairdressers, coffee shops and florists accept cards from customers, but CEO and co-founder Jacob de Geer told PaymentEye the bigger picture is a “multi-product scenario” of services built for merchants that are poorly served by traditional financial services. The firm launched the first product outside payments last summer with Advance, which offers cash advances to small businesses.
Offering a broader suite of products products will see the firms moving deeper into territory traditionally offered by banks, as well as the new generation of digital lending platforms. The advantage companies like iZettle and Square are sitting on is data and the agility to leverage it to build a picture of their customers’ financial health. Nonetheless, this comes at an uncertain time for online lenders, with Lending Club and Ondeck trading well below their IPO valuations.
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