Square is chasing growth by expanding its lending business to non-Square merchants
Context & Ripple Effects
Square Capital started as an advance product bolted onto its card reader: by mid-2015 it had loaned over $500M to small businesses in 18 months, all of them Square merchants whose repayment came out of daily card sales. In March 2016 it formalized the lending side with a partnership with Utah's Celtic Bank, with fees between 10% and 16% of the amount borrowed.
Opening the program to non-Square merchants is the logical next step: it decouples Square's fastest-growing revenue line from its payments hardware, turning Square Capital into a standalone small-business lender that happens to be backed by payments data.
First-order effects
- Non-Square merchants can now borrow through Square Capital without adopting Square's point-of-sale, immediately widening the addressable market beyond Square's installed base.
- The Celtic Bank structure carries the load: partner-originated loans let Square scale lending volume without holding the credit on its own balance sheet.
Second-order effects
- Rivals in small-business lending and payments now face a competitor whose underwriting edge is transaction data rather than terminal distribution — pressure Square itself validated when Q3 results showed 35K+ loans worth about $208M, up 70% YoY alongside a revenue beat.
- Third-party commerce platforms become both channel and data source: Square's later move to pull anonymized transaction data via BigCommerce to pre-qualify more merchants shows how non-Square distribution gets fed into the same underwriting engine.
Third-order effects
- If the pattern holds, payments companies compete less on processing fees and more on who owns the transaction data needed to price credit — pushing small-business finance toward platform lenders and making bank partnerships like Celtic Bank's the standard regulatory wrapper.
- Merchant acquisition inverts: instead of lending being a perk of using Square's hardware, lending becomes the hook that pulls merchants onto the platform.
The trend: Payments platforms are converting proprietary transaction data into lending businesses that grow past their original merchant base, with bank partnerships supplying the regulatory cover.