Square tests low-value short-term loans

Square Inc.’s mobile payment app Cash App has launched a pilot program to offer short-term loans of up to $ 200, TechCrunch reported.

“We are always testing new features in Cash App and have recently started testing the ability to borrow money with approximately 1,000 customers,” a spokesperson for Cash App said in a statement. “We look forward to hearing their comments and learning from this experience.”

Under the terms of the loans, which start at $ 20, payment is due within four weeks. A one-week grace period has been added for users who do not meet this deadline.

There is a fixed charge of 5 percent. After the grace period, there will be a weekly supplement of 1.25% uncompound interest. After a year, this represents an APR of 65%. Although this is high, Debt.org reports that payday loans typically charge an APR of between 28% and 36%, but the average APR for a payday loan is typically around 400%.

Given the state of the economy and the uncertainty surrounding another stimulus package, the timing could be perfect.

Last month, PYMTS reported that six in ten Americans live paycheck to paycheck, with a survey finding 24% don’t earn enough to cover basic expenses. Moreover, in 2018, well before the pandemic, PYMNTS ‘Financial Invisibles report found that 12% of a sample of consumers used payday loans and did not have a credit card.

This is the latest feature Square has added to the Cash App functionality beyond peer-to-peer money transfer, joining its free debit card, rewards, and investment offerings. Square offers small business loans through its Square Capital branch.

Square last week reported second-quarter net revenue of $ 1.92 billion, up 64% from the same period a year ago. The San Francisco-based financial services company said its adjusted earnings were 18 cents per share.

Cash App, which competes directly with PayPal’s Venmo, was the key factor driving Square’s profitability in the second quarter.

Analysts at Refinitiv, the London-based global financial market data provider, had predicted a loss of 5 cents. Square’s net loss for the second quarter was $ 11 million on a GAAP basis. Still, Square’s gross margin for its core selling business fell 9% in the second quarter from a year ago to $ 316 million. And Square’s gross second-quarter payments volume was down 15% year-on-year.