Square Financial Services, Inc. Receives FDIC Approval to Offer Consumer Loan Product Cash App Borrow

Rhea-AI Summary

Block, Inc. (NYSE: XYZ) announced that its industrial bank, Square Financial Services, Inc. (SFS) has received FDIC approval to offer Cash App Borrow, a consumer loan product. The service has demonstrated strong market fit with nearly $9 billion in originations in 2024 through an external bank partner, maintaining loss rates below 3%.

Cash App Borrow provides short-term loans averaging less than $100 with approximately one-month duration, offering a more affordable alternative to payday loans and overdraft fees. SFS currently services business loans through Square Loans (averaging $10,000) and Square Savings, which has accumulated over $300M in savings balances as of December 31, 2024.

The implementation will begin in the coming weeks with a gradual approach to scaling loan volumes over subsequent quarters. Customer eligibility and maximum loan amounts are determined by factors including state of residence, Cash App usage, and repayment history.

Positive

• FDIC approval enables expansion into consumer lending market
• Strong product-market fit with $9B in loan originations (2024)
• Low loss rate under 3% on loan portfolio
• Significant savings business with $300M+ in deposits
• Diversification of revenue streams through consumer and business lending

Negative

• Gradual implementation may slow immediate revenue impact
• Small average loan size ($100) may limit revenue potential per transaction

Insights

Financial Analyst

Block's FDIC approval for Square Financial Services to directly offer Cash App Borrow represents a significant vertical integration milestone with compelling economics. With $9 billion in originations already flowing through external bank partners in 2024, bringing this operation in-house should immediately enhance profitability by eliminating partner revenue-sharing arrangements.

The sub-3% loss rate is remarkably strong for small-dollar consumer lending, suggesting robust underwriting algorithms and a healthy customer base. For context, this performance significantly outpaces typical payday lenders' delinquency rates that often exceed 20%.

This approval creates three distinct financial advantages: (1) full interest capture rather than fee-sharing, (2) reduced transaction costs by keeping activities within their ecosystem, and (3) enhanced customer lifetime value through expanded services. The $300 million in existing Square Savings balances further demonstrates their success in deposit gathering.

Strategically, this moves Block closer to becoming a comprehensive financial ecosystem rather than just a payment processor. Their gradual approach to scaling loan originations shows appropriate risk management while they transition the operational infrastructure in-house. The ability to maintain direct customer relationships without intermediaries should improve both margins and customer experience.

Banking Industry Expert

The FDIC granting Square Financial Services approval to offer consumer lending products represents a watershed moment in fintech-banking convergence. Very few fintech companies have successfully navigated the stringent regulatory requirements to obtain and then expand industrial banking charters.

Cash App Borrow's model of small ($100), short-term loans at lower costs than traditional alternatives demonstrates Block's understanding of an underserved market segment. Their strategy targets the exact pain point that has historically driven consumers toward predatory lenders - immediate, small-dollar liquidity needs.

The operational complexity shouldn't be underestimated - transitioning from a partner-bank model to direct origination requires robust compliance infrastructure, but the long-term benefit is substantial control over the entire lending process. The quoted loss rate of under 3% suggests their risk models are exceptionally effective for this traditionally difficult lending segment.

Block has quietly built impressive banking infrastructure, with their business-focused Square Loans and Square Savings already managing substantial volumes. This consumer expansion completes a comprehensive banking offering spanning both business and personal financial services. Their methodical approach - starting with business banking before expanding to consumer lending - follows a prudent regulatory engagement strategy that has clearly paid dividends with this approval.

Square Financial Services, Inc. approved to offer Cash App Borrow to customers nationwide

Square Financial Services, Inc. will continue to offer loans and banking options for businesses through Square Loans and Square Savings

DISTRIBUTED-WORK-MODEL/SAN FRANCISCO & SALT LAKE CITY--(BUSINESS WIRE)-- Today, Block, Inc. (NYSE: XYZ) announced its industrial bank, Square Financial Services, Inc. (SFS), has received approval from the Federal Deposit Insurance Corporation (FDIC) to begin offering the consumer loan product Cash App Borrow. SFS is an independently governed subsidiary of Block, Inc., headquartered in Salt Lake City, Utah.

The expansion of Square Financial Services, Inc. to offer small, easy-to-repay consumer loans to Cash App customers will continue to drive economic empowerment to consumers. Cash App Borrow is designed to provide short-term cash flow in a simple and accessible way when alternatives are notoriously expensive and difficult for consumers to navigate. The average Cash App Borrow loan was less than $100 and approximately one month in duration, at a fraction of the cost of a payday loan or overdraft fee – and smaller and shorter-term than what a typical bank offers.^{1 2} The short-term credit product is available to eligible consumers who utilize Cash App, and has seen strong product market fit with nearly $9 billion in originations in 2024 offered by Block, Inc. through an external bank partner. Additionally, the vast majority of Borrow revenue comes from customers who pay on time, as the product maintains historic loss rates of less than 3%. Customer eligibility and maximum Borrow offers are based on a number of factors, including customers’ state of residence, Cash App product usage and activity, and on-time repayment history.

“Across Block we’re focused on building technology to increase access to the economy, and Square Financial Services is a critical tool in helping us deliver on that,” said Amrita Ahuja, Block’s COO & CFO, and Executive Chairwoman of the Board of Directors for SFS. “The bank allows us to provide a clear path to cash flow using our proven underwriting mechanisms for businesses and now, consumers who are not well served by the traditional banking and credit systems. We thank the FDIC for enabling us to reach this milestone.”

Square Financial Services, Inc. currently offers business loans and interest bearing business savings accounts to businesses through Square Loans and Square Savings. The average Square Loan is approximately $10,000, a small fraction compared to the average business loan,³ providing Square sellers with transparently priced financing options uniquely tailored to their business that are repaid through a fixed percentage of their daily sales. Square Savings uses automation to simplify sellers’ ability to budget, organize, and save their money for specific goals and priorities. As of December 31, 2024, savings balances through SFS totaled more than $300M.

At the time of the Cash App Borrow servicing change, there will be no impact on the terms of outstanding loans, including payment schedule, and customers will continue to make payments within Cash App. SFS will begin servicing and originating Cash App Borrow loans in the coming weeks with a gradual, disciplined approach to ramping volumes over the course of the coming quarters.

DISCLOSURES

Square Savings accounts are provided by Square Financial Services, Inc. Member FDIC.
Cash App is a financial services platform, not a bank.

About Block

Block, Inc. (NYSE: XYZ) builds technology to increase access to the global economy. Each of our brands unlocks different aspects of the economy for more people. Square makes commerce and financial services accessible to sellers. Cash App is the easy way to spend, send, and store money. Afterpay is transforming the way customers manage their spending over time. TIDAL is a music platform that empowers artists to thrive as entrepreneurs. Bitkey is a simple self-custody wallet built for bitcoin. Proto is a suite of bitcoin mining products and services. Together, we’re helping build a financial system that is open to everyone.

¹ As of December 31, 2024.

² We are able to offer Cash App Borrow at a cost that is less than 1/6th the cost of a payday loan (which averages a 391% APR according to the St. Louis Fed). According to the CFPB the median overdraft on a debit purchase ($24, paid back in 3 days, $34 fee) is a 17,000% APR.

³ According to the Small Business Administration, the average 7(a) business loan was about $436,000.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250313932264/en/

Media Contact

press@block.xyz

Investor Relations Contact

ir@block.xyz

Source: Block, Inc.

FAQ

What is the average loan size and duration for Cash App Borrow by XYZ?

Cash App Borrow's average loan is less than $100 with approximately one-month duration.

How much did XYZ's Cash App Borrow originate in loans during 2024?

Cash App Borrow originated nearly $9 billion in loans during 2024 through an external bank partner.

What is the default rate for XYZ's Cash App Borrow loans?

Cash App Borrow maintains historic loss rates of less than 3%.

How much in savings balances does Square Financial Services hold as of December 2024?

Square Financial Services held over $300M in savings balances as of December 31, 2024.

What is the average Square Loan size for XYZ's business customers?

The average Square Loan is approximately $10,000.