Square’s Momentum Fades Amid Coronavirus Pandemic, As Loan Loss Provisions Rise | Payments Source
When the coronavirus pandemic began, Square went out of its way to get a greater share of online merchant sales and consumer stimulus spending – and even received its much-desired banking license – but found that it didn’t. was not enough to offset the effects of the crisis.
Square’s losses rose sharply to $ 106 million in the first quarter due to the effects of the pandemic, as seller activity slowed, Square said on Wednesday. Gross payment volume in the quarter reached $ 25.7 billion, up from $ 22.6 billion a year earlier. This included strong results in January and February before seller volume began to decline in March as the coronavirus spreads, Square said.
The industrial banking license Square received in March should make it more nimble as it hits the market with loan products that its traders likely need to survive the downturn. However, the model that Square uses to provide loans through its Square Capital business relies on future sales from merchants to pay them back – sales that typically come from physical stores.
“The volumes of cards present decreased by around 60% year over year during the last two weeks of March, while the volumes of cards not present were less affected,” said Amrita Ahuja, director Financial Services, during a conference call with analysts. , according to a transcript.
“Additionally, we have refunded all March software subscription fees to our vendors to support them during the COVID-19 pandemic. And from mid-March, we have suspended new basic flexible loan offerings for Square Capital given the reduced visibility during this disruptive time, ”Ahuja mentioned.
Seller volume fell another 39% in April from a year earlier, but the company saw signs of stabilization towards the end of last month, Ahuja said. Square’s net loss included higher loan loss reserves to offset recent and anticipated losses due to the virus outbreak.
Gross profit in the first quarter was $ 539 million, up 36% from the same period a year earlier.
With more and more consumers sheltering at home, there has also been a dramatic shift towards online spending, and Square is leaning heavily on this trend.
“In March, we took a critical look at our roadmaps and decided to quickly re-prioritize to push forward some initiatives that were originally planned for later in the year,” Jack Dorsey, CEO of Square, told the conference telephone, according to a transcript. “Within two weeks of the first shelter-in-place orders, we launched curbside pickup and delivery options in the Square online store and made them free to all vendors… [and] we launched a gift card portal to help shoppers find Square sellers in their neighborhood to continue supporting them. “
Many merchants offer virtual gift cards as a way to maintain their income and stay in touch with their customers even if their doors remain closed. Other companies, such as Big merchant, has also recently launched an offer of virtual gift cards to meet this demand.
Square saw notable changes in consumer spending from coronavirus-related business closings in the quarter, with cardless transactions up from around 30% last year.
Square’s P2P Cash app – which the company touted as a way to receive and spend stimulus funds – saw its first-quarter profits rise 115% year-over-year. Direct deposit volumes tripled in April, Ahuja said. The aggregate stored value of Cash App users during the quarter reached $ 1.3 billion.
But Square competes heavily for those stimulus payments. PayPal has also made an offer for consumers to use its accounts for these funds and has seen a dramatic increase in signups.
“I would call April perhaps our strongest month since our IPO,” Dan Schulman, chairman and chief executive officer of PayPal, said on an earnings call Wednesday.