Block’s payment volume numbers get the headlines, but the more consequential development inside its Q2 2026 earnings report was buried in the lending line. Consumer lending origination volume increased about 59% to $18.9 billion, driven largely by Cash App Borrow. On the merchant side, the trajectory is equally deliberate and arguably more durable.
Square is rolling out changes to its proprietary machine learning underwriting model that opens up small-business loans to seasonal businesses and new-to-Square merchants, a cohort it had historically avoided because the credit signal was thin. The fix is data architecture. Square’s ability to underwrite loans based on transaction traffic gives it an advantage over traditional lenders, who still rely on tax returns and collateral. Block’s model reads daily sales, category mix, and geographic peer comparisons in real time and sizes the loan accordingly.
The addressable expansion is substantial. Square says these underwriting changes extend credit offers to over 50% more sellers than were previously eligible for Square Loans. Since 2014, Square has originated more than $32 billion in loans for small businesses, with an average loan size of nearly $10,000, but that number was built on a narrower credit funnel. The new funnel is meaningfully wider.
This matters most when consumer retail volumes wobble. Cash App is the more exposed segment when discretionary consumer spending drops, while Square tends to be more resilient, with non-discretionary spending categories like grocery and gas remaining stable. Merchant lending behaves differently still: a restaurant taking a Square loan to buy equipment or stock inventory ahead of a peak season is not correlated to whether foot traffic ticks up or down next week. The loan is already on the books.
Square Loans have been described by the company as having less than 3% loss rates, with 58% going to women-owned businesses and 36% to minority-owned businesses. Those credit quality figures matter for a different reason beyond inclusion: they signal that the underwriting model is not simply chasing volume at the expense of portfolio health. Block’s lending subsidiary, Square Financial Services, is an FDIC-insured industrial bank, which gives it a funding cost advantage that non-bank fintech lenders cannot replicate.
The second-order effect is retention. Lending is strategic for Block because it deepens the relationship with small businesses and is a primary cross-sell opportunity. A merchant that borrows through Square, deposits into Square Savings, and processes payroll through Square is not switching to Toast or Clover over a hardware discount. The lending product becomes the adhesive.
For Q3 2026, Block expects gross profit of $3.13 billion, representing 18% year-over-year growth, and raised its full-year outlook to $12.51 billion, implying 21% growth. The risk to that number is not the lending business. Cash App monthly transacting actives were 59 million in June, and that figure has been flat across multiple quarters. Meanwhile, transaction, loan, and consumer receivable losses have been rising sharply year over year as lending volumes increased. If the consumer lending engine cools faster than merchant lending scales, the gross profit target gets harder. That is the threshold investors should track through year-end.
