Why Square Is Pursuing an Industrial Bank Charter
Square outpaced PayPal in top-line growth
Square (SQ) recorded a 33% YoY (year-over-year) increase in revenue in 3Q17. Square’s top-line growth in the latest quarter compared favorably with the growth of several of its rivals in the payments processing and loan businesses. PayPal (PYPL), Amazon (AMZN), Fiserv (FISV), and LendingClub (LC) reported revenue growth of 21%, 34%, 1.0%, and 34% YoY, respectively, in 3Q17.
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Loan business underpinned top-line growth
Square’s 33% YoY top-line growth in 3Q17 wouldn’t have come without the company’s loan business. In 3Q17, Square said it extended $303 million in loans, implying an increase of 45% YoY. The strong growth in the loan business lifted Square’s subscription and services revenue 84% YoY and subsequently contributed to the top-line growth.
The subscription and services business, which consists of the credit business, was the fastest-growing of Square’s three reporting segments in 3Q17.
More than $1.8 billion in loans supplied
Square has extended more than $1.8 billion in loans to its customers since it launched its credit business in 2014. Buoyed by strength in its credit business, Square is seeking regulatory approval to operate an industrial bank.
Square’s pursuit of an industrial bank charter is very telling. For one, the application for bank status suggests that Square wants to get the most of its loans business as it applies the lessons it has learned so far since entering the lending scene a few years ago. Square’s plan for bank status also seems to suggest that the company wants to advance its credit business in order to extend loans to even more businesses beyond its existing base of customers.