The big ASX banks might need to watch out because Square Inc (NYSE: SQ) is coming with its Square Loans product.
What’s going on?
Square is a leading financial technology business. In the company’s own words:
“We started with a little white card reader but haven’t stopped there. Our new reader helps our sellers accept contactless and chip cards and our Point of Sale lets sellers keep track of their inventory, employees and their customers, so they can make smarter decisions.
We’re empowering the electrician to send invoices, helping the clothing boutique see what’s selling best, and providing the coffee chain with customisable gift cards.”
According to reporting by the Australian Financial Review, Square is about to launch business loans in Australia in the next couple of months.
This could be bad news for National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Group Ltd (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Group (ASX: WBC).
Australia has the honour of being the first country that Square is expanding its small and medium business loans to, outside of the US.
Square only launched in Australia five years and it’s been growing its customer base by 92% per year.
The decision on whether to lend money will be based on data generated from its payment terminals. They will be offered working capital for a fixed fee, not an annual interest rate.
Why is Square attractive to merchants?
There are two attractive reasons that the AFR referred to as to why Square is winning over merchants.
Square has been selling its payment receivers for $50, which is a lot cheaper than what big banks charge merchants. The fintech has apparently been trying to win over larger businesses with software that helps the business with inventory, team management and online sales.
Its offer may get traction because the big ASX banks apparently rely too much on loans being secured by residential. What if a business owner doesn’t have a property? Square will offer loans of up to $75,000 without security.
Summary thoughts
This could be difficult for the big ASX banks. The biggest part of their loan book is mortgages for residential property, but business loans is a sizeable part. More competition isn’t a good thing for them.
ASX dividend shares that have long term profit growth potential are attractive to me. The more competition there is, the harder it will be for the ASX banks to grow profit over time.
