Square Is Examining the Potential Impact of Consumer Lending


Oct. 19 2018, Updated 6:31 a.m. ET

Allowing shoppers to pay in installments

In addition to helping Square (SQ) expand its credit business and close the gap with its rivals, consumer lending also has the potential to stimulate growth in Square’s other business segments.

Square expects its Square Installments consumer loans to enable merchants on its network to make more sales. Square Installments loans let shoppers acquire the items they want through installment payments if they can’t meet the cost up front. While Square lets shoppers pay in installments, it releases the full payment up front to merchants.

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Stimulating growth in the transaction business

If merchants are able to make more sales because of Square Installments consumer loans, Square can generate more transaction revenue. The company charges a fee to facilitate payments for merchants on its network, so the more the merchants transact, the more it earns. Transaction-based business was Square’s largest source of revenue in the second quarter, accounting for 76.7% of its total revenue. Square’s transaction-based revenue rose 30% YoY (year-over-year) to $625 million in the period.

At Amazon (AMZN) and eBay (EBAY), marketplace business is the primary source of revenue.

Leveraging loans to boost customer loyalty

Square, PayPal (PYPL), and Amazon have long used loans to foster stronger relationships with their merchant customers. Adding consumer lending, whose aim is to drive more value for merchants, gives Square another tool to improve customer loyalty as it seeks to fend off the competition.

Besides PayPal and Amazon, Square is in the race with LendingClub (LC) and OnDeck Capital (ONDK) for loan customers. LendingClub and OnDeck Capital grew their revenues 16.2% and 43.6% YoY, respectively, in the second quarter.


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