Block secured approval from the FDIC to originate loans through its banking subsidiary, Square Financial Services, allowing it to offer low-value consumer loans directly, rather than relying on external banking partners. The move is an expansion of Cash App Borrow, the company’s short-term lending product, which was introduced as a pilot program in 2022 to help users manage unexpected financial situations.
Cash App Borrow charges a flat fee of 5% for its loans. If the loan is not repaid within four weeks, there is an additional finance charge of 1.25% per week — which Block says is “a fraction of the cost of a payday loan or overdraft fee – and smaller and shorter-term than what a typical bank offers.”
Transaction losses in Block’s lending segment jumped 39% last quarter, but the company still claims its underwriting model is strong. Block says that small-dollar lending is inherently risky, but that it has a solid grasp on its lending. The company shared in a recent press release that the average Cash App Borrow loan was under $100 and paid back in about a month.
Cash App Borrow isn’t Block’s only lending product. As you might recall, the company acquired the BNPL provider Afterpay for $29B in early 2022 and has since integrated it into various products in its portfolio, including Cash App.
