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This is the financial services industry's equivalent of "We'll monetise by sticking ads around it": "We'll monetise by advancing loans and collecting interest"

by mpclark 12y ago

This is the financial services industry's equivalent of "We'll monetise by sticking ads around it": "We'll monetise by advancing loans and collecting interest" Whoever can find more borrowers at the edges gets plenty of short term profitable business, but we all know how it ends...

munin 12y ago
> but we all know how it ends... billion dollar companies?
JumpCrisscross 12y ago
This is what makes capital markets work in the long run. A naïve lender treats all borrowers similarly. A new entrant, with better data or analytics, is able to discern a quality gradient amongst the borrowers. This new entrant can now offer loans to the higher quality borrowers at a better rate. That makes it easier for sound businesses to borrow cheaply. The new entrant can also discriminate against riskier borrowers with a higher rate. That protects capital and makes the system sturdier. Adding information, the way Square seems to be doing, to a financial process is sound economics. This is not the stuff of gimmicks.
- grimtrigger 12y ago
  Does Square have access to information that credit card companies do not? If not, why haven't CCs started a similar program (or have they)?
  - bksenior 12y ago
    A credit card is by definition a loan, so Id say they have. Thats why when you open a new business you have an Orcas weight in "sign up for this credit card" envelopes at your door.
    - grimtrigger 12y ago
      Good point.
  - JumpCrisscross 12y ago
    Credit card companies are heavily regulated. There may be limits to whether they can do with their point-of-sale data. More critically, their data may have limited power for predicting businesses' creditworthiness. MasterCard can only see MasterCard transactions. This is fine for evaluating the cardholder, particularly if MasterCard is at the top of their wallet. But it produces a conditional view if one wants to estimate a merchant's cash flows. Square, on the other hand, sees a broader swath of a business's transactions. This might give it a small statistical edge in certain cases.
  - cm2012 12y ago
    There is an entire Merchant Cash Advance industry based around these kind of loans. It was a big innovation around 16 years ago.
bernardom 12y ago
> Whoever can find more borrowers at the edges gets plenty of short term profitable business Also, long term profitable business. See: Capital One. Yes, they lend for individuals, not businesses, but the majority of their card customers are on the low-end of the spectrum. Here's an old (2012) article with context: http://www.nytimes.com/2012/04/11/business/lenders-returning-to-the-lucrative-subprime-market.html?pagewanted=all http://www.nytimes.com/2012/04/11/business/lenders-returning...

by mpclark 12y ago

munin 12y ago

> but we all know how it ends... billion dollar companies?

JumpCrisscross 12y ago

This is what makes capital markets work in the long run. A naïve lender treats all borrowers similarly. A new entrant, with better data or analytics, is able to discern a quality gradient amongst the borrowers. This new entrant can now offer loans to the higher quality borrowers at a better rate. That makes it easier for sound businesses to borrow cheaply. The new entrant can also discriminate against riskier borrowers with a higher rate. That protects capital and makes the system sturdier. Adding information, the way Square seems to be doing, to a financial process is sound economics. This is not the stuff of gimmicks.

grimtrigger 12y ago
Does Square have access to information that credit card companies do not? If not, why haven't CCs started a similar program (or have they)?
- bksenior 12y ago
  A credit card is by definition a loan, so Id say they have. Thats why when you open a new business you have an Orcas weight in "sign up for this credit card" envelopes at your door.
  - grimtrigger 12y ago
    Good point.
- JumpCrisscross 12y ago
  Credit card companies are heavily regulated. There may be limits to whether they can do with their point-of-sale data. More critically, their data may have limited power for predicting businesses' creditworthiness. MasterCard can only see MasterCard transactions. This is fine for evaluating the cardholder, particularly if MasterCard is at the top of their wallet. But it produces a conditional view if one wants to estimate a merchant's cash flows. Square, on the other hand, sees a broader swath of a business's transactions. This might give it a small statistical edge in certain cases.
- cm2012 12y ago
  There is an entire Merchant Cash Advance industry based around these kind of loans. It was a big innovation around 16 years ago.

bernardom 12y ago

> Whoever can find more borrowers at the edges gets plenty of short term profitable business Also, long term profitable business. See: Capital One. Yes, they lend for individuals, not businesses, but the majority of their card customers are on the low-end of the spectrum. Here's an old (2012) article with context: http://www.nytimes.com/2012/04/11/business/lenders-returning-to-the-lucrative-subprime-market.html?pagewanted=all http://www.nytimes.com/2012/04/11/business/lenders-returning...