Square’s Credit Business Is Fueling Top-Line Growth


Nov. 20 2020, Updated 5:14 p.m. ET

Square Capital grows 64%

Beyond processing transactions for merchants, Square (SQ) also supplies business loans to its merchant customers through a service called Square Capital. In this credit business, Square competes with PayPal (PYPL), Amazon (AMZN), and alternative lenders such as LendingClub (LC).

The company said it supplied $251.0 million in small business credit in 1Q17, indicating that the Square Capital business rose 64.0% from a year earlier. Square has offered ~$1.5 billion in loans since it launched Square Capital three years ago. In contrast, PayPal has supplied ~$3.0 billion worth of loans in three years through its PayPal Working Capital credit arm, and Amazon has distributed ~$2.5 billion in small business credit in six years.

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Credit business fueling top-line growth at Square

The growth in its loan business contributed to Square’s top-line improvement in 1Q17. The company reported overall revenue of $462.0 million in 1Q17, up 21.7% from a year earlier and above the consensus estimate of $450.7 million.

The chart above shows how Square’s lending business has grown in the last five quarters.

Credit business could be a long-term pillar for Square

Supplying credit to merchants could be a long-term pillar business for Square. Besides the income from fees charged on loans, the credit business is an opportunity for Square to cultivate stronger relationships with its customers, which could boost customer retention and potentially limit disruption from rival services such as Apple’s (AAPL) Pay Cash, a peer-to-peer payment service.

Additionally, understanding merchants’ lending habits could pave the way for Square to create new products and services that bring more revenue.


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