Square Makes Jeopardy’s Daily Double
September 17, 2020“What is Square?”
That was the right question to the answer read by Jeopardy host Alex Trebek during an episode that aired this week. Contestant “Beth” hit a Daily Double and waged $2,000 to try and take the lead over “David” and “Joe.”
@Jack, hello pic.twitter.com/zwIzdAyTVT
— Nick D 👨👧 (@ndimichino) September 17, 2020
Square employees reacted on twitter by pointing out that the quoted transaction cost was a little out of date, but mostly took the honorable mention in stride.
We've made it! https://t.co/MZoZofrsno
— Jackie Reses (@jackiereses) September 18, 2020
Square Capital Resumes Business Lending
August 4, 2020
Square Capital, the small business lending division of Square, resumed offers for its “core flex loans” in late July, the company announced. However, there will be “stricter eligibility criteria.”
Square Capital made no core flex loans in Q2, having paused in mid-March on news of the impending crisis.
The company pivoted to PPP lending in Q2 in the interim and through this program managed to fund over 80,000 small businesses for a grand total of $873 million. The average came out to approximately $11,000 per loan.
Square says that in PPP they “expanded awareness of Square Capital as 60% of [their] PPP borrowers had never before received a loan through Square.”
Loss rates during Q2 were about 2.5x prev-COVID levels, a range they accurately predicted might happen at the end of Q1.
Square is About to Become a Real Bank
March 18, 2020
Square is on its way to becoming a bank. The payments and online lending company was approved by both the FDIC and the Utah banking regulator this week to create a de novo “industrial” bank. The company has been trying to accomplish this for more than two years. The news means that Square will likely no longer rely on a relationship with Celtic bank to make loans, while also being able to take on deposits.
The FDIC said in an announcement that, “The bank, Square Financial Services, Inc., will originate commercial loans to merchants that process card transactions through Square, Inc.’s payments system.”
Another fintech company, Nelnet, was also granted approval for an industrial loan charter at the same time.
Square and Nelnet’s move to become a bank is similar to the path taken by LendingClub. Rather than become chartered themselves, LendingClub recently agreed to acquire a chartered bank. However, LendingClub still must wait approximately 12 months for the deal to go through the process of regulatory approval.
Square Capital Originated $528M in Loans in Q2
August 5, 2019Square Capital facilitated 78,000 loans for $528M last quarter, according to their recent earnings report, an increase of 36% year-over-year. Thr growth is the exact percentage increase experienced by rival Shopify.
Square says that they continued to see an average loss rate of less than 4% for their core Flex Loan product.
AltFinanceDaily ranked Square Capital as the 4th largest alternative small business finance company of 2018. The company loaned $1.6B last year. PayPal was #1 at more than $4B. Shopify Capital is on pace to do more than $2B this year.
Square Originated $508M in Business Loans in Q1
May 1, 2019Square Capital, Square’s business lending arm, originated 70,000 small business loans for a total of $508 million last quarter, according to their recent earnings report.
As a payments company first, Square processed $22.6 billion in gross payment volume in Q1 and generated a net loss of $38 million on $959 million in revenue.
Online Lenders Square Off, Offer The Kabbage In Brooklyn Food Court
April 10, 2019
In a fast gentrifying section of Downtown Brooklyn, online lenders are waging a silent turf war. Each day, hungry consumers flock to DeKalb Market, a subterranean hipster food court where lunch and a drink can cost $17. The maze-like space with retro neon signs and rustic wood countertops offers a dizzying array of cuisines, and with it, the opportunity to indulge in one’s own individual preferences. But if you’re looking for the vendor’s payment machines, you’ll notice an eerie sameness amidst a cacophony of color.
Square processed $85 billion in payments in 2018 and here in DeKalb Market, 75% of the vendors AltFinanceDaily surveyed relied on Square’s Point-Of-Sale technology. The publicly traded company generated $2.5 billion in payment transaction fees last year alone, but it’s the add-on products like Instant Deposit, Cash Card, Caviar, and Square Capital that are propelling the growth. 244,000 businesses received a loan from Square in 2018 for a total of $1.6 billion. Borrowing is as simple as clicking a few buttons on the POS dashboard, making Square the presumptive lender of choice for businesses in the food court.
But the rankings on a national level say that Square trails behind Kabbage, an online lender with no reliance on a POS system. Kabbage’s growth trajectory has been epic, once a lending service for eBay merchants, the company is now one of the largest online small business lending companies in the United States.
Undeterred by the sea of Square dashboards, billboard advertisements for Kabbage once blanketed the periphery. The ads, which few consumers seemed to gaze at, were clearly meant for the business owners in between the food court and the mall above it. There was also a competitive feel to it, as if Kabbage was subconsciously communicating to Square that they were not alone.
Nowhere to be found was OnDeck, an online lender headquartered a short distance away in Manhattan that does more in loan volume each year than Square and Kabbage. But just because they can’t be seen doesn’t mean they’re not there. Blending into the crowd of consumers, AltFinanceDaily spots business loan brokers, ones reputed to refer business to alternative capital sources and online lenders, OnDeck among them. 29% of OnDeck’s business in 2018 was attributed to Funding Advisors, an army of independent sales professionals across the country.
But they’re here for lunch just like everybody else, or are they? Their in-person presence may complicate their rivals’ efforts. Can a face and a handshake trump familiar software and the Internet? OnDeck’s $2.5 billion in 2018 loan volume suggests that their diverse sales strategy, including the use of Funding Advisors, has an impact.
Some vendors in DeKalb Market fail and go out of business. Others, like Cuzin’s Duzin, a homemade donut vendor made semi-famous by its feature on a Vice Media TV Show, The Hustle, recently completed renovations and further expanded its business into the nearby Barclay’s Center. Public records show the company just received financing from an equipment leasing company based in Washington State, a possible missed opportunity for the online lenders canvassing the space. Not for long, perhaps, as OnDeck announced it would be entering the equipment finance market this year.
As for Square, the love for the POS product presents a perceived edge. A general manager of Two Tablespoons, another food vendor, told AltFinanceDaily that he thinks the Square system they rely upon is very easy to use. He said it also creates promotions that allow businesses like them to track customer spending and text a customer (with their permission) if they’ve earned, say, $5 off at a store.
But converting these vendors into borrowers is not guaranteed. Kabbage’s ads could not be found on a recent trip to the food court. And one shop selling burgers there told AltFinanceDaily that they were aware of the loan product through Square because they use the POS for payments, but that they had no interest in using it to borrow money.
“It’s like a credit card,” she said. “What you take out, you owe. And we choose not to owe.”
Acquisition Costs Compared for GreenSky, Square, PayPal, OnDeck, Lending Club, and Prosper
March 5, 2019
Greensky, a consumer lending company, wants investors to know how low its acquisition costs are relative to the competition. The chart above, which appeared in their year-end earnings report, showed how much lower their sales & marketing expense ratio is versus Square and PayPal.
AltFinanceDaily examined three additional fintech lending companies and ranked them as follows:
| Company Name | 2018 Sales & Marketing Ratio | 2017 |
| GreenSky | 5% | 5% |
| PayPal | 8% | 9% |
| OnDeck | 11% | 15% |
| Square | 12% | 11% |
| Lending Club | 39% | 40% |
| Prosper Marketplace | 76%* | 72% |
*indicates an estimate
The closeness between Square and OnDeck is notable in that Square markets its payment services first and then offers loans (and other products) as an add-on, while OnDeck only offers loans. Despite that, sales & marketing as a percentage of revenue are still virtually the same for each of them. Square is outspending OnDeck on marketing by more than 10:1, however, and is on pace to surpass OnDeck’s annual loan volume.
Prosper, meanwhile, is doing just as poorly as its wacky ratio looks. The company is losing tens of millions of dollars a year with no end in sight.
Square Capital On Pace to Overtake OnDeck in Small Business Lending
February 28, 2019
OnDeck’s annual loan origination volume has more than doubled since 2014, from $1.2 billion to $2.5 billion, allowing them to retain the top spot in AltFinanceDaily’s small business funder rankings. But Square Capital, the small business lending division of Square, has grown by 16x since 2014. In the course of 5 years, they’ve gone from being a footnote compared to OnDeck to a fierce rival that is rapidly closing the gap in loan volume.
Square’s secret is the ability to generate loan volume at virtually no cost because the product is merely an add-on to their payments-first business. And that’s a problem for OnDeck, because Square has a lot of money to spend on marketing its payments business. More than $400 million a year to be precise. OnDeck, meanwhile, only spent $44 million last year on sales and marketing.
With OnDeck being outspent by a factor of 10, there is a likelihood that Square will overtake OnDeck in the business loan market within the next two years.
And Square’s strength is the ecosystem it’s building. On the Q4 earnings call, company CEO Jack Dorsey said, “I believe the ecosystem is extremely sticky, because it builds durable relationships. If we’re just focused on providing payments in the Register, certainly, there are so many other competitors out there. But when people come in for payments in the Register and then they use [our] payroll for their restaurant and they use Caviar and are really getting offers from Square Capital, it’s really hard to find that mix anywhere else and that builds durability.”
