The payments giant Block is positioning its Square bank to offer short-term consumer loans through its Cash App digital wallet as an alternative to payday lending, targeting borrowers who are unable to access traditional credit.
Loans made through its Cash App Borrow program, which were previously originated by Salt Lake City-based First Electronic Bank, will be administered by Block’s industrial bank, Square Financial Services, after the company received FDIC approval to offer consumer loans, the company said Wednesday in a news release.
The Cash App loans are about one-sixth the cost of a typical payday loan, a Block spokesperson contended in an email announcing the FDIC approval. The spokesperson declined to elaborate.
The loans let Block, based in Oakland, California, provide services to “consumers who are not well served by the traditional banking and credit systems,” Block Chief Operating Officer and Chief Financial Officer Amrita Ahuja said in the release.
Consumers are charged a one-time set-up fee for Cash App Borrow loans that usually equal 5% of the loan, the Block spokesperson said in an email.
Based on state law limitations, a typical two-week payday loan might have an annual interest rate approaching 400%, the Consumer Financial Protection Bureau said in a May 2024 post on its website, citing a loan that charged $15 for $100.
The average Cash App loan is less than $100 and roughly one month in duration, Block’s release said.
The app originated roughly $9 billion in loans in 2024 through First Electronic Bank, the release said. Block and First Electronic Bank began working together in 2022.
Square Financial Services, which is based in Salt Lake City, launched operations in 2021 and also offers business loans.
Consumer advocates have long criticized the payday loan industry for trapping low-income families and cash-strapped borrowers in cycles of debt and perpetuating poverty.
The payday lender industry has argued that it offers credit products to those who can’t get traditional loans.
The FDIC’s approval should benefit Cash App because cutting out the bank partner will save Block money on infrastructure costs, TD Cowen analysts wrote Thursday in a note to investors.
Block “was slow and deliberate about broadening use of the charter to not alarm regulators,” the analysts wrote. “We think this approach makes sense and this approval is positive reinforcement from regulators that it's executed well on its mandate.”
