Jack Dorsey’s Square will start lending for customer purchases

Jack Dorsey is co-founder and chief executive of Square.
(Richard Drew / Associated Press)

Square Inc. is offering loans to customers to pay for goods and services from merchants that use its payment platform, another move by the company to push deeper into financial services.

Merchants in 22 states, including California, will be able to offer the installment payments on purchases of $250 to $10,000. The San Francisco company said Thursday that its lending arm, Square Capital, will cover the cost on the buyer’s behalf.

The initiative, which has been tested for the last year, allows buyers to apply online. If approved, they repay Square in fixed monthly amounts over three, six or 12 months.


“We think this provides small businesses with a level playing field,” said Jackie Reses, head of Square Capital. “Think about someone who needs to do a home improvement project, or even hair extensions they’d like to try. This product has a lot of examples of how a high-ticket item can be parsed out.” Over the last year, Square has seen 36 million transactions of more than $250 on its platform, Reses said.

This initiative is part of Square’s efforts to expand beyond its core business of payment processing. Square Capital has played an increasing role in boosting the company’s sales and profit since starting in 2014. In the most recent quarter, it facilitated more than 60,000 business loans totaling $390 million. Investors have backed Square’s efforts, with the company’s shares more than tripling to $96.96 in the last year.

The product puts Square into a crowded space of financial technology companies such as Max Levchin’s Affirm Inc. and PayPal Holdings Inc. that also offer installment loans. It’s also the company’s latest move to increase its relevance in the lives of consumers, not just merchants. Square recently rolled out a loyalty program connected to its Venmo-like peer-to-peer money transfer tool, Cash App. It also offers a debit card connected to the app.

Square — co-founded and led by Twitter Inc. chief Jack Dorsey — has kept default rates low for loans to businesses by using all the data it has on the merchants through its payment platform. With installment loans, Square will be exposed to consumer defaults.

“We feel very comfortable with the type of risks we’re taking,” Reses said, given the credit information and external data sources that Square will be using to make its underwriting decisions. Square plans to hold the consumer loans on its balance sheet, but as it lends more, it could sell them to outside funds, as it does with its loans to merchants.

Borrowers who are approved are charged an annual percentage rate of zero to 24%. That’s in contrast to Affirm, which offers payments at an annual percentage rate of 10% to 30%.