A growing number of platforms are offering credit to their consumers as it appears just about everyone is getting into the online lending business these days. Square (NYSE:SQ), in launching loans from Square Capital provided by Celtic Bank in Utah, has provided another incremental service to the thousands of users that have migrated from the clunky past of credit card transactions to the now ubiquitous and elegant Square process of credit transactions. Square already offered cash advances to their users but have now added features of a loan to the service – apparently due to user demand
— Square (@Square) March 25, 2016
Square states that over 90% of the users taking a Merchant Cash Advance (MCA) from Square Capital love it and do it again. Square clearly targets small business a sector that has been largely ignored by a traditional bank as they view the loan making process to costly with little profit potential. No paperwork necessary for the borrower as the company already has the data necessary to understand how much money they may safely lend as the repayment process becomes a fixed percentage of your daily transactions. Has a bank ever told you no paperwork is necessary to take out a loan?
Square transacted $10.2 billion in Q4 of 2015. This represents an incredible 47% year over year increase. During 2015, Square Capital already delivered $400 million in cash advances to their merchants. So what does this mean for existing marketplace lending platforms? As the established platforms are seeing new found competition from agile competitors that are not slow moving like traditional banks. Probably not so much. The debt markets are enormous. One well known marketplace lending platform estimated their total addressable market in the trillions of dollars. Square is doing hundreds of millions today. Many established marketplace lenders are doing billions of dollars. There are plenty of businesses and consumers that have not yet shifted from dealing with old school financial firms to the better service offered by online lenders. The biggest loser in this systemic shift is the bank of the past. Too many employees at too many locations offering services that are seeing lessening demand. A better question is what happens when Apple moves into providing credit, loans and then other banking services. Management most certainly is discussing this option as a natural progression for Apple Pay.