Mobile payments company Square grew its gross payment volume 34% over last year, and its loans through Square Capital were up twice that — 68%.
The San Francisco-based company processed $13.7 billion in payments in the fourth quarter of 2016, compared with $10.2 billion in the same quarter last year. Total net revenue was $452 million, up 21% from the prior year.
Here’s what the company said about Capital in its shareholder letter:
For Square Capital, we facilitated over 40,000 business loans totaling $248 million in the fourth quarter of 2016, an increase of 68% year over year, while maintaining loan default rates at approximately 4%. Additionally, we processed $624 million in Invoices GPV during the fourth quarter of 2016, growing 68% year over year and representing nearly $2.5 billion on an annualized basis.
We’re able to upsell and cross-sell to our base of millions of sellers with minimal incremental cost, largely due to our respected brand and ability to tailor offerings directly to sellers, especially in the context of their usage (e.g., providing an Instant Deposit prompt when sellers receive a payment via Square Invoices, or during a long weekend when settlement would otherwise be delayed by a holiday).
CFO Sarah Friar commented further on Square Capital on the earnings call:
So I think first and foremost, we’re doing something very unique. We’re also meeting them where they are. So they often get the flag on that capital loan being available in their dashboard, or via an e-mail, all avenues that they’re conversing with us often on a daily basis.
Square’s loan volume is equal to 1.8% of its gross payment volume. A year ago, loan volume was equal to 1.4% of GPV.
A caller asked if Square was considering a business credit card, an idea that has been kicking around the fintech world for a while. (PayPal offers one for consumers.) CEO Jack Dorsey said Square Capital is better suited for businesses, which makes a Square credit card unnecessary:
So we’ve been approaching this more in what financial services can we offer for businesses that fit into their business immediately. So one of the beautiful things about our model is if we focus our efforts on building tools and services to help sellers grow, our business grows as well. So we have this very, very nice virtuous loop and that’s why we got started in payments in the first place, but that’s also what led us to things like Square Capital where you know a number of businesses were not able to get a loan amount that you would typically see on a business credit card, for example, from a bank. So it’s replaced some of that usage…. That said, we’re always looking for opportunities for us to provide more financial services to sellers and also to individuals.
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