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Square is chasing growth by expanding its lending business to non-Square merchants

A partnership with the startup Upserve will give 7,000 restaurants access to Square Capital.

A female barista stands behind a counter with coffee machines filling orders using a Square stand.
Square at work
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

Square’s lending business, Square Capital, has been a pleasant surprise from the start. So it always seemed likely Square would expand its reach and offer loans to non-Square merchants, too.

The question, however, was how it would accomplish this expansion without eliminating two key advantages to its current model. One, that it doesn’t have to spend much advertising money to attract its borrowers today, since they are already Square customers. And, two, that Square possesses sales data on how a borrower’s business is performing, which can be used to inform its underwriting decisions and keep default rates low.

Square thinks it has it figured out. The company is starting to offer loans to restaurants that aren’t Square customers in a partnership with Upserve, a startup that processes payments for, and leases software to, 7,000 eateries. Square borrowers receive a lump-sum payment within a few days of being approved and repay the loan each day by giving Square a fixed percentage of their daily sales.

In an interview, Square Capital head Jackie Reses said the partnership is one that will still preserve Square’s differentiating factors from other online lenders. Because of the partnership, Square won’t have to spend advertising money to acquire new borrowers because Upserve is spreading the message on its behalf. It seems likely, however, that Square is compensating Upserve in some way for the referrals, which makes sense. (The companies declined to discuss the financial arrangement.)

Reses also said that Upserve will pass along anonymized sales data from its restaurant customers to Square, giving Square a data set similar to what it gets from its current customers to help it decide which restaurant gets a loan offer.

Square is smartly trying to have it both ways as it tiptoes into expansion mode: Expanding its potential borrower base while still keeping its acquisition costs low and getting the data it needs to minimize risk.

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