Square takes on Affirm with point-of-sale installment loans

Shoppers who buy big-ticket items from Square merchants will now have the option to pay via installment loans, the company said today. Square will offer the point-of-sale loans for amounts between $250 and $10,000, online and offline, through its Square Capital division.

Square is best known for serving small businesses, many of which have average transaction sizes under $20. But a surprising number of Square merchants sell higher-value products and services, such as furniture or hair treatments, says Square Capital lead Jacqueline Reses. “Over the course of the last year, we’ve seen 36 million transactions that fit within this profile of high-ticket sales. We see it as a significant opportunity across the Square ecosystem.”

Installment loans have re-emerged as a popular payment option in recent years. For consumers, they offer clarity by locking in a fixed monthly cost, unlike credit cards. For merchants, they can increase sales by reducing cart abandonment and encouraging larger purchases. Affirm, a startup focused on installment loans, has raised $720 million in venture funding and partners with retailers including Expedia and Peloton.

Square first started issuing loans in 2014, when it introduced business loans for its merchants. Last quarter, Square Capital facilitated $390 million worth of business loans, a 22% increase from the year prior. The average merchant loan size was within the range the company has set for consumers: $6,500.

In launching a consumer-facing loan, Square signals its growing interest in serving consumers directly. Already, the company offers an app for peer-to-peer payments and a debit card. It’s not hard to imagine a credit card or other services being added to the mix.

“What’s important to us is finding unique places where we have unusual access to data,” says Reses. “That’s where, across the Square ecosystem, we would want to play.”

Square’s installment loans are currently available in 22 states, with plans to expand nationwide.