Square Tests Loan Feature Via Cash App

The pilot allows users to borrow up to $200 and is Square's latest move towards becoming a full-fledged bank.

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Need to Know 

  • Square-owned Cash App is testing a new feature allowing users to borrow up to $200.
  • The move into lending services signals Square’s latest step in its move to open a traditional-style bank.
  • Square’s lending and investing services may be an effort to differentiate itself from top competitor PayPal and its subsidiary Venmo.

Analysis

Cash App, the money transferring service from Square, is now testing a new feature allowing users to borrow up to $200. 

Starting with just 1,000 test users, Cash App will offer loans from $20 to $200. Borrowers will have to pay back the loan within four weeks, at a flat interest rate of 5%. Late payments after the four week period will receive a one-week grace period, followed by 1.25% interest each week until the loan is paid off.

Cash App, which started out as a simple peer-to-peer money transfer service, has expanded recently to also offer a free debit card, a rewards program, as well as an investment tool. 

“We are always testing new features in Cash App, and recently began testing the ability to borrow money with about 1,000 Cash App customers,” a company spokesperson said in a statement. “We look forward to hearing their feedback and learning from this experiment.” 

Square, the mobile payments platform that owns Cash App, has reported massive growth due to the popularity of the money transfer app. Cash App itself saw a growth of 167% year over year, while Square saw a 64% year-over-year jump — and a net revenue of $1.92 billion.

Cash App’s top competitor, PayPal-owned Venmo, grew 52% year-over-year, processing over $37 million in payments, according to PayPal’s Q2 2020 report. 

But Cash App’s move into more traditional financial services, like lending, could be seen as an effort to differentiate from the fintech superpower. In fact, the introduction of lending services within the app could signal the start of the next phase of Square’s effort to open a commercial bank

Another new competitor in the mix? Facebook. 

As more digital consumer-facing financial services continue to take off worldwide, tech giant Facebook also plans to compete. The social networking platform has inserted itself into the payments world with the launch of its own cryptocurrency, digital wallet, and payments service.

And most recently, Facebook announced the formation of an entire new division to manage its financial initiatives—joined by former PayPal exec Stephane Kasriel. 

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