Square launches small business instalment payment service
(10 October 2018 - USA) Square Payments has launched a new service that enables customers of its small business clients to pay for purchases in instalments.
Through Square Instalments, the San Francisco-based company founded by Twitter CEO Jack Dorsey will be extending credit to the customers of merchants that use its technology to accept payments online and in-store for purchases ranging between US$250 and US$10,000. Borrowers will be able to repay in fixed monthly payments over a period of three, six or 12 months and interest rates will range between zero and 24 percent. The technology arms race among payment fintech’s is converging on the market for credit and loans as Square and other POS (point of sale) companies are under pressure to support larger purchases than what can be handled at the micro-merchants they traditionally served, while also helping those smaller businesses handle more complex transactions. Square's announcements comes after the success of Square Capital, the merchant advance product that provides funding based on a merchant's cash flow through Square hardware and software. Merchants pay back the loan through future Square sales.
Merchants will receive the payment upfront and Square holds the loans on its balance sheet. Square, whose flagship technology is a small credit card reader that turns smartphones into payment tablets, has been seeking to diversify its revenue stream by providing more services ranging from loans to accounting software. The POS lending service pits Square into more direct competition with other financial technology companies that provide similar forms of credit to consumers such as Affirm Inc, GreenSky LLC and Klarna. Square’s hardly alone as consumer credit becomes near table stakes for payment technology companies. In the past year, Visa has invested in Klarna, a Swedish company that supports instalment payments; Splitit has developed ways to surpass card spending limits; British fintech Zopa is collaborating with partners to push the envelope for travel instalment payments, UK gateway Paysafe has plotted a move into the US.; PayPal Credit has collaborated with BigCommerce; and early market entrant Affirm recently debuted a microlending program in partnership with Apple Pay. And it’s also not Square’s initial foray into services that resemble banking. Square’s varied merchant lending products and regulatory applications suggest a diverse and proactive expansion into financial services that range far beyond its early smartphone credit card hardware. Machine learning does give these new lenders an edge in risk management to go along with online applications which replace traditional paper-based in-store credit—creating a better user experience and reducing declines. For Square, it's the latest in a long line of products it has added to shore up its appeal to merchants. Square recently added support for Google Pay to improve merchant experience, added a connector for iOS devices to enhance in-store mobility for merchant staff and partnered with eBay to extend its merchant credit business.
The fintech share of the US personal loan market has expanded to more than a third this year from a share of zero in 2010, according to Aite research. The fintech consumer lending market uses alternatives to bank credit decisioning such as advanced analytics, AI and big data to manage the risk. But until a downturn occurs, there's no way to know if default risk is being reduced, according to Aite, which predicts some companies in the online consumer lending space will fail in the next economic downturn. Square’s consumer instalment payment offering is different simply because it’s part of this broad Square platform, said Rick Oglesby, founder and president of AZ Payments Group. Instalments "can be fully integrated into Square’s payment processing, POS and Square Cash products to make the product easier to offer, easier to use and easier to sell than competitive products. It makes Square's platform even more valuable” Oglesby said. “We built a tool, typically available to larger businesses, that helps sellers offer financing to their end customers. For the customers, it is an easy way to manage larger payments in such a way that you can have an easy fixed monthly payment. Consumers will be able to apply online through a short form and receive a decision in real time” said Jacqueline Reses, Head of Square Capital.