How Block's using its license to threaten traditional bank lending

• Key insight: Use of Block's Cash App Borrow has expanded in the year since the company received FDIC approval to directly originate loans. 
• What's at stake: Block is leaning on Cash App to build a financial services business in competition with PayPal, other fintechs and banks. 
• Expert quote: "We've been able to reach younger demographics that don't trust traditional credit." —Juan Hernandez, head of credit and underwriting at Block.

The fintech encroachment on banking increasingly includes credit, with Block using a regulatory win from the Federal Deposit Insurance Corporation to dramatically expand lending to consumers.

Block's Cash App Borrow product has originated more than $27 billion in loans in the five quarters since March 2025, more than the $9 billion Block reported for Borrow in the full calendar year 2024. Block this week released progress of its lending program since the FDIC in March 2025 approved Square Financial Services' application to originate and service loans from the company's Cash App Borrow service. Cash App's users include younger consumers and gig economy workers, key demographics for alternative credit.

"We're focused on improving access to lending in ways you can't get from traditional banking," Juan Hernandez, head of credit and underwriting at Block, told American Banker. 

An App for Cash

Cash App Borrow, which makes mostly short duration loans to Cash App users, is part of Square Financial Services, the industrial bank unit of Jack Dorsey's Block. Square Financial Services also offers business loans and interest-bearing savings accounts. Borrow loans are repaid in four weeks. 

Users can choose to pay back the loan in a lump sum or through a series of installments.

Instead of traditional interest rates, Cash App Borrow typically charges a flat fee (often around 5%) for the loan. If the loan is not repaid within the payback period, additional late fees may apply.

The secret sauce for Borrow is its underwriting. Like many fintechs that offer lending, Block's underwriting relies less on credit scoring than on payment patterns. A borrower's transaction behavior is part of the vetting progress. "In a few weeks of payments, we can get a good look at their financial health," Hernandez said. Block tracks a customer's activity on Cash App to produce what it calls a Cash App Score, which the borrower can view on the app. 

Each loan includes an upfront fee, which is designed to avoid "ongoing" debt. Eligibility is assessed before each new Borrower loan, taking into account more recent account activity and repayment behavior. 

For the first quarter of 2026, Block's new customers had a 3.16% risk loss rate, or the percentage of the portfolio that the company expects to lose to defaults; 7- to 12-month customers had a 3.01% risk loss rate, and customers who had been on Cash App's platform for more than 13 months had a 2.67% loss rate.

Since the FDIC approval, more than 15 million active (or monthly) Cash App users have accessed Borrow, according to the company, noting the loans are generally to bridge temporary cash flow gaps, cover unexpected expenses and manage daily financial needs. It's a different need than BNPL, which finances purchases.

Among consumers who have used Borrow for personal loans, 19% have household incomes below $30,000, 25% earn between $30,000 and $70,000, and a majority (56%) report household incomes above $70,000. Block argues this reinforces the need for short-term liquidity is not confirmed to a single income level. 

"We've been able to reach younger demographics that don't trust traditional credit," Hernandez said. 

Measuring risk

Block and other payment fintechs such as PayPal and Flex use their relationships with small businesses and consumers to lure borrowers from banks, which have longer decision times for personal loans. While these fintechs generally use sponsor banks to manage underwriting, compliance and other parts of risk management, the FDIC permission enables Block to manage the entire lending process and keep more of the revenue. Block had previously used First Electronic Bank, a Utah-based industrial bank, to support the loans, and still uses sponsor banks for some of its small-business loans. 

"We're seeing a lot of movement from fintech into the small-business space," Tony DeSanctis, senior director at Cornerstone Advisors, told American Banker. 

Cash App's merchant networks are a huge opportunity to expand its lending capabilities, according to DeSanctis. 

"From a margin perspective, lending is generally more profitable than payment transactions, even if the volume is smaller, so you can definitely understand why fintechs are leaning into that space," DeSanctis said. 

Block pairs Borrow with other products designed to sell Cash App as a financial services hub with lending, buy now/pay later, shopping and crypto trading, rather than a P2P payments app. These products include Moneybot, an AI assistant that helps consumers track the links between spending, investing and saving. While AI is not directly originating Borrow's loans, AI does assist consumers in budgeting and spend management, the factors that go into eligibility for loans. It's an AI usage that's also taking hold at other fintech lenders.

"AI isn't replacing credit judgment, it's expanding what lenders can see. A restaurant owner with strong daily sales but a thin credit file may have been overlooked by traditional underwriting," said Rohit Arora, CEO and co-founder at lending fintech Biz2Credit. "By analyzing cash flow, payment processing data and other real-time business signals, AI helps identify creditworthy borrowers who might otherwise be missed. That's better underwriting, not looser underwriting."