US Internet Industry: What Alphabet, Facebook, Amazon Are Up To

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Part 13
US Internet Industry: What Alphabet, Facebook, Amazon Are Up To PART 13 OF 15

Square Is Expanding Its Lending Business

Industrial bank operator

Square (SQ) is in the process of expanding its lending business. It has applied to regulators for a license to operate an industrial bank unit. The unit will be called Square Financial Services and will be based in Utah.

Through the bank unit, Square will provide loans (QQQ) and accept deposits from small businesses. The move is viewed as another step Square is making to grow its credit business.

The company runs a credit service called Square Capital in partnership with Celtic Bank. Square Capital supplies small loans averaging $6,000 to small businesses that use its payment processing products.


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$1.8 billion in small loans

According to Square’s CEO (chief executive officer) Jack Dorsey, Square Capital has distributed more than $1.8 billion in loans to small businesses in the United States (SPY), including $318.0 million in 2Q17. Through the credit unit, Square generates extra revenue in the form of interest income. Square also uses the credit service to draw more customers to its platform and encourage them to use its other products and services.

In 2Q17, Square’s revenue rose 26.0% to $552.0 million. Square generates revenue through three main sources: transaction, subscription and service, and hardware sales.

Fastest-growing segment

Of these three reporting segments, transaction represents the largest source of revenue, while subscription and service is the fastest-growing segment. Square Capital is part of the fast-growth subscription and service segment. Its revenue rose 99.0% to $59.0 million in 2Q17.

In the business of issuing loans to customers, Square competes with Amazon (AMZN) and PayPal (PYPL).


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