Can Square's Online Lending Platform Survive Competition From American Express?

Media reports last week suggested that American Express Company AXP plans to launch an online loan platform targeting small businesses, raising questions around the ability of Square Inc’s SQ small business lending unit, BTIG’s Mark Palmer said in a report. He maintained a Buy rating on Square, with a price target of $12, saying the concerns appeared overblown.

There are reports of American Express’s new products being a short-term vendor financing vehicle that differs significantly from the flexible loans offered by Square Capital [Square’s small business lending unit]. “As such, we believe the “threat” posed by AXP to SQ’s lending business has been overblown,” analyst Mark Palmer wrote.

Related Link: American Express' Q2 Expected To Beat Street Estimates At D.A. Davidson

Different Products

Management pointed out that Square Capital’s loans and American Express’s vendor financing represented “completely different products,” which appears to be the case having had a closer look at the latter company’s offering under the heading of Working Capital Terms, Palmer commented.

American Express plans to offer 30- and 60-day loans to existing small-business cardholders probably ranging between $1,000 and $750,000 for use in paying vendors. In contrast, Square discontinued offering merchant cash advances in March and initiated flexible loans with terms as long as 18 months.

“While some Square Capital loans are used for vendor financing, many are used to fund growth initiatives that likely would not be possible otherwise due to a lack of available funding,” the analyst wrote.