Square’s Cash App Tests Small-Dollar, Short-Term Loans

Cash App, Square Inc.’s mobile payment 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 recently began testing the ability to borrow money with about 1,000 customers,” a Cash App spokesperson said in a statement. “We look forward to hearing their feedback and learning from this experiment.”

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 miss that deadline.

There is a flat 5 percent fee. After the grace period, there will be an additional 1.25 percent of non-compounding interest weekly. After a year, that adds up to a 65 percent APR. While that’s high, Debt.org reports that payday loans typically charge an APR of between 28 to 36 percent – but the average payday loan’s APR is commonly about 400 percent.

Given the state of the economy and uncertainty over another stimulus plan, the timing could be just right.

Last month, PYMTS reported that six in 10 Americans are living paycheck to paycheck, with a survey finding that 24 percent don’t make enough to cover basic expenses. Separately, in 2018, well before the pandemic, PYMNTS’ Financial Invisibles report found that 12 percent of a sample of consumers used payday loans and did not have credit cards.

This is the latest feature Square has added to Cash App’s features beyond peer-to-peer money transfer, joining its free debit card, rewards and investing offerings. Square has been offering loans to small businesses through its Square Capital arm.

Last week, Square reported $1.92 billion in net revenue for the second quarter, up 64 percent compared to the same period one year ago. The San Francisco-based financial services firm said its adjusted earnings were 18 cents per share.

Cash App, which competes head-to-head with PayPal’s Venmo, was the key factor that drove Square’s profitability in Q2.

Analysts at Refinitiv, the London-based global provider of financial market data, had predicted a 5-cent loss. Square’s net loss for Q2 was $11 million on a GAAP basis. Still, Square’s gross profit for its core seller business fell 9 percent in Q2 compared to last year, down to $316 million. And Square’s gross payments volume in Q2 dipped 15 percent year over year.