Block, PayPal Earnings Show Sellers Continue to Embrace Working Capital

For Block and for PayPal, the headlines gleaned from earnings may be about bitcoin, about gross payment volumes and the continued shift to digital transactions.

And, indeed, as spotlighted here in our own earnings coverage this past week, PayPal noted growth in transactions per account, Block pointed to growth in Cash App, and consumer spending remains buoyant.

With a bit of a deeper dive into the earnings materials, though, the two companies show some evidence that key customers — that would be the sellers, of course — are giving a boost to the payment firms’ working capital and lending arms.

Commentary may have been scant on those operations during the earnings calls themselves. But PayPal’s 10-Q details the trends surrounding  Merchant Receivables. Within that line item are the PayPal Working Capital and PayPal Business Loan products. In the most recent quarter, the company purchased $419 million of receivables. The total “pool” of receivables and interests in that receivables bucket was $1.2 billion at the end of March.

Through the Working Capital product, as detailed in the SEC filing, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant. PayPal noted that loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes.

The company detailed that in 2023, gross charge offs were $38 million, representing a decline from the $228 million seen in 2022.

Block’s 17% Growth

Block, for its part, said in its most recent earnings letter that it facilitated 129,000 Square Loans to its customer base, which was tied to $1.3 billion in originations, up by 17% year over year.

Block said in its latest quarterly report that the commercial loans held for sale were $475 million most recent quarter.

The data comes against the backdrop where, as PYMNTS Intelligence noted, coming into 2024, about 16% of Main Street small and medium-sized businesses (SMBs) said they were likely to consider merchant cash advances, and roughly 23% said that they would mull loans from online lenders. There’s some indication that online players such as Block and PayPal may have room to gain some consideration among more traditional lenders. As detailed in this report, roughly 68% of firms surveyed said that operational stability were among the most important considerations for seeking financing; 75% said that availability and accessibility of those loans were among the key considerations.