Block Delivers $200B in Credit as Banks Pull Back From Subprime

Fintech company Block has now delivered more than $200 billion in credit through Square, Afterpay, and Cash App. Block uses cash flow underwriting as well as proprietary scoring models to serve subprime borrowers. The data shows that an important share of Block borrowers fall below prime credit tiers.

That fact is important because credit providers have pulled back from the same population.

Rate cap proposals are being bandied about in Washington. Lenders appear more cautious with higher-risk consumers. Block has stepped into that gap.

The pattern is part of a bigger trend. Credit card balances continue to rise. But growth is most pronounced at the top of the credit spectrum. Super-prime cardholders are responsible for much of the expansion.

Issuers would rather do business with customers who have higher scores and predictable income. Subprime consumers must contend with fewer options.

Credit Moves Where Banks Hesitate

Traditional card issuers have a difficult tradeoff. Higher interest rates and a greater number of delinquencies both increase risk. Political pressure around the rate is mounting. The increasing forces push banks toward safer borrowers, and this spreads the uncertainty.

Fintech lenders operate under a different playbook. Block does not rely on a single credit product. It spreads exposure across installment loans, BNPL plans, and short-term advances. All are tied to transaction data. The structure allows risk to be distributed across platforms.

Cash App loans are small and provide credit with short repayment times. Afterpay features installment buying at checkout. Square gives credit to merchants based on sales flow. Each product hits a different time in the cash cycle. Together, they form a credit ecosystem that banks find hard to duplicate.

Block’s COO and CFO Amrita Ahuja said, “We’ll obviously be very watchful on a real-time basis on how they trend, but what we’ve seen so far has been extremely strong momentum.”

Borrower profiles fit right into this scheme. Many consumers have credit files that are thin or beat up. Traditional scoring models struggle to assess them. Block uses internal data instead. Transaction history and account inflows, as well as spending patterns, guide credit decisions.

Credit Card Growth Tells a Different Story

Issuers are adding balances for super-prime consumers the quickest. Approval standards are tighter at the lower end of the credit score spectrum. Subprime card access has not increased nearly as fast — even as policymakers are looking deeper into card charges.

Block’s growth is tuned to the prevailing environment. The company is not trying to replace credit cards but instead is playing a different role. It has taken up the demand that banks no longer deal with. Now, the demand flows through fintech rails instead of card networks.

William Blair analyst Andrew Jeffrey said, “Small balance, short-duration credit addresses real consumer pain points that traditional banks cannot.”

Fintech lenders are at greater risk of loss than are the larger banks that have regulatory protections in place to protect them from excessive loss. But fintech lenders are also at an advantage in terms of their ability to quickly adjust product offerings, pricing, and lending standards.

Cash Flow Underwriting Gains Traction

One detail stands out in Block’s approach. Cash App relies on a proprietary credit score. That score draws heavily from cash flow data. It does not depend upon bureau history alone. This method appeals to lenders that serve subprime borrowers. Cash flows tell the truth about behavior, and the data updates in near real time.

“What the Cash App Score pilot does is give customers transparency into how their credit eligibility is determined,” said Brian Boates, Risk Lead at Block.

Traditional scores lag behind reality, and a missed payment can remain a problem for years. A borrower’s new job may not be written into the credit files until a good span of time passes. But cash flow data reacts faster.

Rate caps now threaten interest margins so underwriting precision is important. Lenders must price risk accurately. Cash flow models may provide a better congruence between behavior on one hand and credit terms on the other.

Block’s scale propels this model. A $200 billion lending book tests underwriting at volume. Success could cause competitors to follow.

What This Means For Subprime Credit

In the last year or so, the subprime market hasn’t declined; it’s been broken into smaller parts. Large banks have focused their lending efforts on the prime customer base, while fintech companies are assuming many types of credit risks via innovative — and often non-traditional — lending structures.

Customers today can select from either type of lender based on which one best fits their needs.

What Block’s recent achievement represents is a shift in the distribution of credit risk. As such, regulators may limit the interest rate lenders charge consumers, but they won’t be able to stop the capital markets from seeking a return.

Credit access will not depend on a single product. It will depend on data quality, underwriting speed, and product fit. Block has placed a large bet. The rest of the market is now watching the results.