Square Archives - Lend Academy

Are Digital Banks Struggling to Get Traction?

A new survey suggests that digital banks are not getting much traction yet but there is more to the story

May 22, 2019 By Peter Renton 4 Comments

An article in Forbes earlier this month about the traction of digital banks caught my attention. A survey of U.S. consumers conducted by Cornerstone Advisors showed that traction among many of these new neobanks (I use this term and digital bank interchangeably in this article) is not happening as quickly as many of us expected. According to the survey only 3% of millennials have their primary checking account at a digital bank like Chime, Simple or Moven.

The survey also found that only 7 million deposit accounts have been opened at digital banks and that only Ally, Chime and BankMobile have more than one million deposit accounts. Simple, the first digital neobank to launch almost 10 years ago, has just 517,000 accounts according to the survey.

Now, when Chime announced they had raised $200 million in March they claimed to have opened 3 million FDIC-insured bank accounts. So, it is quite possible this survey is undercounting the total or that maybe there is a difference between an open account and a funded one. Regardless, we have a long way to go before any digital bank can challenge the size of even a midsized regional bank.

There are, of course, many other neobanks not included in the survey. At LendIt Fintech USA 2019 last month the CEO of MoneyLion, Dee Choubey, said that his company has more than 4 million users today. Another example is Square Cash, which has over 15 million monthly active users and with the debit card some consumers are using this as a primary bank account. So, one could even include Square Cash as a neobank (Square is in the process of applying for a banking license).

All this should be put in the context of a special report in The Economist earlier in the month with the cover exclaiming “Tech’s raid on the banks”. One of the many interesting stories in that report was about “Flanker banks” where banks create a new brand to compete with themselves. We have seen that at JPMorgan Chase with Finn and Greenhouse by Wells Fargo and there are numerous examples internationally. But according to the Cornerstone Advisors survey Finn is not getting much traction yet – their number of 47,000 accounts is surprising, if not shocking, to me. Greenhouse is still in limited rollout.

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Square Launches Point of Sale Consumer Installment Loans

In their first foray into consumer loans Square Installments will offer loans from $250 to $10,000 with terms up to one year

October 8, 2018 By Peter Renton Leave a Comment

Last week we learned that Square, best known for their small business credit card processing service, is getting into the consumer loan business. Lending is not new to Square, they launched Square Capital in 2014 to help their small business customers get access to capital. But they have never offered a financing option direct to the consumer until now.

While the typical transaction on Square is small they had more than 36 million transactions larger than $250 in the past year. And these are the transactions they are going after with their new Square Installments product.

Loans will range from $250 to $10,000 and will have terms of three, six or twelve months. Interest rates will range from 0% – 24% APR. The application process is fairly simple with applications able to be completed in store on the customer’s own phone and most applications will be approved or rejected instantly. Square takes on the credit risk as the customer pays the loan back to Square directly and the merchant receives the full amount of the sale.

The way it works is that the customer, once approved, is given a virtual credit card number to provide to the merchant to process the transaction and trigger the loan. It is interesting that they quote APRs starting at 0%. Given that Square will be making significant income on the merchant processing fee I could see how offering a super prime customer a 0% loan could make sense for them in certain situations. [Read more…]

The New Breed of Small Business Lenders: Amazon, Paypal and Square

We explore the small business lenders of tomorrow who have significant advantages in customer acquisition and data.

July 25, 2017 By Ryan Lichtenwald 1 Comment

If asked where to get a small business loan most people would state their local banks or even some of the bigger traditional banks. Those aware of the online lending space may mention the likes of Kabbage, OnDeck, Funding Circle or maybe even some of the new online initiatives of big banks like Wells Fargo’s FastFlex product. However there is another, often overlooked segment of small business lenders and they are names you have heard of: Amazon, Paypal and Square.

Until recently I hadn’t paid much attention to these companies. Amazon in particular flies under the radar and little is known about their lending business. Recently it came out that they are doing a considerable amount of lending to small businesses. Amazon lent $1 billion in the last year and has lent $3 billion to more than 20,000 small businesses since launching their lending product in 2011.

Most alternative small business lenders aim to innovate on pricing, speed, transparency or underwriting. Many also claim the use of data for underwriting purposes as a main differentiator. I’d argue that Amazon has more of an advantage when it comes to data since most other lenders rely on third parties or the small business to provide access to their data. Since Amazon is a marketplace for sellers they have an incredible amount of data on the cash flow of businesses that operate on the platform. They also have a significant pool of borrowers, resulting in virtually no customer acquisition costs.

The best way to understand how Amazon lends money to small businesses is hearing about it directly from a borrower. The podcast called Marketplace recently interviewed an Amazon seller and it was fascinating to hear how it works. [Read more…]

An Overview of Small Business Loan Funding

We delve into the various ways small businesses can access capital.

December 19, 2016 By Todd Anderson 2 Comments

As non bank lenders continue to gain market share across different loan segments, we wanted to give a complete overview of online small business lending and how diverse the options are for all types of businesses today.

Understanding your company and where you fit within the ecosystem of small businesses is still the most important question you can ask. The options available vary in loan size, interest rates and term length dependent on the type of business you run. Though one thing is certain, today there is such a wide array of options available that most business owners should be able to secure funding.

SBA Loans

SBA or Small Business Administration loans are considered some of the best funding options available for their low interest rates, though their detailed paperwork and lengthy approval process tend to limit the types of firms who can secure these loans. There are three different types of loans offered by the SBA; 7(a) SBA Loan Program, CDC/504 SBA Loan Program and the less used Microloan Program. We will delve deeper below but these loans are designed for companies with very good credit, collateral and a solid business plan. The loans are not delivered directly by the SBA, the SBA acts as a guarantor so the banks can then allocate some of their small business lending to the SBA programs. Some of the top lenders in this space include Wells Fargo, US Bank and JP Morgan Chase; national, regional and community banks are the main lenders of SBA Loans.

7(a) SBA Loan

Loan Amount – $5,000 – $5,000,000
Loan Term – 5 – 25 years
Interest Rates – 6 – 13%

This is the most well known and most commonly used loan that the SBA program offers. This loan can be used to expand a company, finance equipment, purchase real estate or to make an acquisition. Businesses consider SBA loans as the top financing product to get approved for, however the process of applying and ultimately being approved is quite extensive. Companies need to provide financial statements, explanation of use of proceeds, details on collateral and full business descriptions. The process is still very similar to getting a traditional loan through a bank as the entire period can last about 90 days. [Read more…]