Merchant services provider Square Inc has embarked on the second leg of its Australian growth strategy after confirming on Wednesday its entry into the small business lending market.
Square’s local head of industry and payments Samina Hussain-Letch said the company had not set a launch date for its business loan product but expected to roll out the offer before the end of June.
The local arm’s foray into lending is a significant step for Square’s Californian-based parent as its means Australia will be the first market outside of the US to begin marketing a credit product.
Hussain-Letch said the company’s decision to begin marketing small business loans this year was deliberately timed to coincide with the expiry of the federal government’s Covid-19 relief measures for small business owners.
“The timing of launch is fairly intentional given that government stimulus packages are now drying up,” she said.
APRA data shows demand for business credit has been anaemic since the pandemic hit a year ago, but the negative trend might soon reverse as the hospitality industry and other hard-hit industries renew commercial activity and restore cash flow.
Square is hoping that its wholly digital loan application and assessment process will help stoke interest in its loan product.
“There are no forms to fill out – we are aiming to make the loan process as simple as possible for sellers using our platform,” said Hussain-Letch.
“However, there is an assessment process we undertake, so not every seller (merchant) will have access to these loans.”
The Square business loan will only be available to merchants subscribed to the company’s payments and sales management platform.
The company is relying on client data mined from the platform to perform risk assessments on loan applicants before credit contracts are approved.
Once loan applications gets the green light, borrowers agree to automatically repay Square a fee that is collected as a share of their daily sales.
While Square does not impose interest on its loans, it uses a risk-based pricing model to measure the borrower’s capacity to service debt.
This means that the fee will vary according to Square’s risk-rating of individual borrowers.
“Rather than submit piles of paperwork, Square uses transaction data to build loans that are received as early as the next business day, are always interest free, and are repaid automatically based on a percentage of daily sales,” Hussain-Letch said.
“If a business has a quiet day, it pays less of their loan amount back.”
In the US, Square was recently granted a Utah-based banking licence that will enable it to eventually issue a full service banking offer to its merchant base.
If the Australian business continues to track the pathway of its American parent, then a local application for a banking licence seems inevitable.
“It’s something we wouldn’t rule out,” said Hussain-Letch.
“But you probably won’t see it in the near future because it requires a lot of capital and resources.”
A prepaid debit card could be the next product roll out in Square’s push into Australian financial services.
In partnership with Mastercard and an external banking partner, the US parent issues fee-free prepaid debit