Block’s Cash App Borrow Expansion: A Strategic Play for Financial Inclusion and Profitability
18min read Block (SQ) is doubling down on its mission to democratize credit access with a bold move to increase borrowing limits for eligible Cash App users who receive direct deposits through the platform. The initiative, announced by CFO Amrita Ahuja during Block’s Q1 2025 earnings call, reflects a strategic shift to leverage its newly FDIC-approved banking subsidiary, Square Financial Services (SFS), to expand lending while cutting costs. This could position block as a disruptor in the $60 billion U.S. short-term lending market, traditionally dominated by high-cost payday lenders.
The Strategic Move: Expanding Access, Cutting Costs
Block’s decision to raise borrowing limits targets users who link their direct deposit to Cash App—a cohort with stable income streams and repayment histories. This group, now 30% of Cash App’s 57 million monthly active users, gains access to higher credit lines, with eligibility criteria tied to usage patterns and state residency. The move builds on Block’s 2024 success, which saw $9 billion in Cash App Borrow originations through external partners. Now, with SFS directly managing loans, Block can reduce infrastructure costs by eliminating third-party fees, as noted by analysts at Cowen, who estimate a 15-20% improvement in unit economics.
The FDIC approval in March 2025 was pivotal, enabling nationwide lending and doubling the eligible user base by expanding from 27 to all 50 states. Ahuja emphasized this as a “gradual, disciplined approach,” prioritizing risk management while scaling.
Under the Hood of the Borrow Product: Low-Cost, High-Resilience
Cash App Borrow’s design prioritizes affordability and transparency. Loans average under $100 and last ~30 days, with a one-time 5% fee—a fraction of the 391% APR typical for payday loans. Block’s historic loss rate of less than 3% underscores the model’s resilience, driven by short durations and real-time underwriting algorithms that adjust eligibility dynamically.
Ahuja highlighted that 90% of Borrow revenue comes from timely repayments, a metric that contrasts sharply with the high default risk of traditional payday lenders. This structure not only attracts cost-sensitive borrowers but also aligns with Block’s broader mission to serve the underbanked, a demographic representing ~25% of U.S. adults, per the FDIC.
Regulatory and Operational Advantages
By in-house loan origination, Block avoids reliance on external banks like First Electronic Bank, reducing operational friction and compliance costs. The shift also allows Block to retain more revenue from lending activities, a key driver of its 2025 gross profit growth targets of 12% annually, with Q4 projections for mid-teens growth.
Block’s underwriting prowess, honed through its Square Loans business, now fuels consumer lending. Machine learning models analyze repayment behavior in real time, enabling rapid adjustments to risk parameters. For instance, data signals from direct deposit users—such as consistent income flows—are used to raise limits without compromising risk controls.
Market Reaction and Financial Outlook
Analysts have praised the move as a win-win: users gain affordable credit, and Block gains a high-margin revenue stream. Cowen analysts estimate that Borrow could contribute $1.5 billion in gross profit by 2026, assuming a 30% increase in originations.
However, Block’s Q1 2025 results revealed softness in discretionary spending, contributing to an EPS miss. Ahuja acknowledged macroeconomic risks but noted that non-discretionary spending (e.g., groceries) remains stable. The company plans to accelerate hiring for field sales in 2025’s second half, signaling confidence in Borrow’s scalability.
Risks and Considerations
While the model shows promise, macroeconomic headwinds—like rising unemployment or reduced consumer spending—could strain repayment rates. Additionally, regulatory scrutiny of fintech lending remains a wildcard. Block’s 3% loss rate, though low, could climb if borrowers face financial stress.
Conclusion: A Compelling Growth Story
Block’s expansion of Cash App Borrow represents a strategic masterstroke, blending financial inclusion with profit-driven innovation. With a $9 billion 2024 baseline and the potential to double its eligible user base, the product is well-positioned to capitalize on the $60 billion short-term lending market.
The data backs this optimism:
- Cost Advantage: Borrow’s 5% fee is 1/6th the cost of payday loans, attracting price-sensitive borrowers.
- Resilience: A <3% loss rate outperforms traditional lenders, even in a weakening economy.
- Scalability: In-house origination reduces costs and enables faster growth, with Cowen projecting $1.5B in gross profit by 2026.
For investors, SQ’s stock—up 22% year-to-date as of early 2025—reflects confidence in this vision. While macro risks linger, Block’s focus on underserved markets and its data-driven underwriting could cement its position as a fintech leader. As Ahuja noted, this isn’t just about loans—it’s about “increasing access to the economy,” a mission that could pay off handsomely for both users and shareholders.
