Square Installments: Risk or Reward?
The newest offering from small business leader Square comes in the form of flexible payment options. With Square Installments, small business owners can now benefit from the same convenience as their larger counterparts when it comes to financing for their customers. It offers the ability to split purchases into fixed, monthly amounts to enable more financially manageable expenditures.
To expand access to this type of financing for small businesses, Square says it is offering simplified setup and low sales volume minimums. But is this too risky even for Square?
Ultimately, it depends on who you ask. BTIG analyst Mark Palmer questions the potential exposure to credit markets in particular, according to CNBC.
“The market appears to be overlooking any risks to the company’s business model, and credit risk in particular,” Palmer said. “Our bearish thesis on Square (SQ) is predicated in part on our view that the company’s increasing dependence on the extension of credit to its customers to spur its growth has made its business model increasingly vulnerable to volatility in the credit markets.”
And it would seem at least some of the market agrees as Square’s stock fell 9% in response to the recent launch, according to the same CNBC article.
But that’s only one side of the coin. Square is positioning the offering as a big win for small business. Through Square Installments, eligible customers can benefit from a line of credit that enables monthly payouts for purchases ranging between $250 and $10,000, the company said in its announcement. Square is offering 3, 6 and 12-month financing options with an interest rate ranging between 0 and 24 percent.
Square research also shows a 68% potential increase in consumer retention for those small businesses offering financing options.
“We’re focused on removing the complexity associated with financial products, enabling more businesses to access incredible tools that can help them grow,” said Head of Square Capital Jacqueline Reses via the company’s press release. “Square Installments delivers simple and quick financing to customers seeking greater flexibility as they make purchasing decisions.”
So, both sides seem to offer good perspective. Ultimately, time will tell.