Square Capital Has No Borrower Acquisition Costs, Hints at Making Loans to Non-Square Users

As the marketplace lending industry frets over acquisition costs, one lender is sitting pretty, Square. That’s because they source their borrowers from their existing payment processing ecosystem. Square CFO Sarah Friar said on their earnings call last week that it was one of the big advantages they had with investors looking to buy loans. “We’re not having to go out and it’s not costing us more to do customer acquisition because it doesn’t cost us anything. We’ve already acquired them,” she said. Compare that to OnDeck who spent $16.5 million in Q1 to acquire borrowers through sales and marketing.

Also on the call, Friar did reveal one benefit of having switched from a merchant cash advance product to a loan product that didn’t have anything to do with investors, and that’s being able to handle clients who want to satisfy the balance in full or obtain additional funds. Since no interest accrues with traditional merchant cash advances, there are no presumed discounts if you want to repurchase your sold receivables. Early repayments were apparently the number one request they received from their clients.

It’s not clear exactly what Square did previously when merchants wanted to “repay early,” but there are other merchant cash advance companies that will allow clients to repurchase back their sold receivables at a slightly discounted price if it’s relatively soon after the original transaction occurred. Either way, Friar said that the shift from MCA to loan hadn’t changed the level of demand.

Notably, while not even directly asked, Friar also said that they are also continuing to look into making loans to non-Square users, perhaps through other card processors.