Square Capital Wades Into New Lending Waters

Hot on the heels of favorable Q2 results, Square, with Square Capital has made a move intended to keep the good news coming. It announced yesterday a partnership with Upserve, which means that funding from Square Capital will now be available to businesses operating outside of Square’s payment processing ecosystem.

The why we’ll get to in a minute.

First, why the little known startup Upserve? A channel to better prospect for new Square customers and access to data that might even make their risk models smarter too.

For Square Capital, the partnership will provide access to 7,000 restaurants across the country and, more importantly, their data. Upserve provides management payment services and software for restaurants and sees $8 billion annually in transaction volume – it also acquired Groupon-owned Breadcrumb. Providence, Rhode Island-based Upserve claims to add 250 restaurants to its portfolio every month.

Square says that the customer synergies made it a natural hookup. Square Capital says that Upserve and Square share a focus on technology, the customer, and the simplicity of the product. Perhaps more important, Upserve will give Square Capital access to data that could help them refine their understanding of the customers of the businesses that they lend to as they refine their model for the restaurant space.

Upserve uses artificial intelligence to predict a restaurant’s turnover and performance. With the partnership, the data will be provided to Square, which will, in turn, apply the data to machine models that make underwriting decisions for existing customers. A decision to extend working capital – or not – will be made using that data.

According to Square Capital, the end game is access to a base of customers in the sweet spot of SMBs that are always eager to tap into working capital, but may have a hard time getting it. Data intelligence plus a new customer pool will mean more capital for Square Capital, in addition to a potential pipeline of prospects eager for access to Square’s payments platform.

Square Capital already claims a data advantage given its visibility into customers’ sales histories, receivables and order peaks and valleys. The more data that Square Capital is able to leverage, the fewer defaults they will see on their loans – so far Square Capital claims a low default rate of 4 percent.