Cash App, Square Inc.'s mobile payment app, has launched a pilot program to offer short-term loans of up to $200, TechCrunch reported.
\”We will always be testing additional features in Cash App, and recently began testing the ability to borrow money with about 1,000 customers,\” a Cash App spokesperson said in a statement. \”We look forward to hearing their feedback and learning from this experiment.\”
Under the the loans, which start at $20, payment is due within four weeks. A one-week grace period continues to be added for users who miss that deadline.
There is really a flat 5 percent fee. After the grace period, there will be an additional 1.A quarter of non-compounding interest weekly. Following a year, that contributes up to a 65 percent APR. While that's high, Debt.org reports that pay day loans typically charge an APR which is between 28 to 36 percent – however the average payday loan's APR is often about 400 percent.
Given the state of the economy and uncertainty over another stimulus plan, the timing could be just right.
Last month, PYMTS reported that six in 10 Americans live payday to payday, with a survey discovering that 24 percent don't make enough to pay for basic expenses. Separately, in 2022, prior to the pandemic, PYMNTS' Financial Invisibles report discovered that 12 % of a sample of consumers used pay day loans and did not have credit cards.
This may be the latest feature Square has put into Cash App's features beyond peer-to-peer money transfer, joining its free debit card, rewards and investing offerings. Square continues to be offering loans to smaller businesses through its Square Capital arm.
Last week, Square reported $1.92 billion in net revenue for the second quarter, up 64 percent when compared to same period twelve months ago. The San Francisco-based financial services firm said its adjusted earnings were 18 cents per share.
Cash App, which competes head-to-head with PayPal's Venmo, was the key factor that drove Square's profitability in Q2.
Analysts at Refinitiv, the London-based global provider of monetary market data, had predicted a 5-cent loss. Square's net loss for Q2 was $11 million on a GAAP basis. Still, Square's gross profit because of its core seller business fell 9 percent in Q2 compared to last year, right down to $316 million. And Square's gross payments volume in Q2 dipped 15 percent year over year.
