Small Businesses Hunker Down, Sending Fintech Into a Tailspin--Update
19 March 2020 - 10:55AM
Dow Jones News
By Peter Rudegeair
Coronavirus is causing big pains for companies that cater to
small businesses.
Payments processors, lenders and other service providers to
small, bricks-and-mortar firms are bracing for a slowdown as the
fallout from the pandemic hits many of their customers, especially
retailers and eateries. New York, New Jersey and other states
ordered the closure of bars, restaurants, gyms and other businesses
to foot traffic to try to slow the spread of the coronavirus.
Shares in Square Inc., whose payment devices are ubiquitous at
coffee shops and beauty salons, fell nearly 29% on Monday, their
largest one-day drop on record. They fell another 12% on Wednesday
to $39.50.
Square makes the bulk of its revenue on fees based on the
transaction volume at its small-business customers, which could
suffer as more consumers spend less time outside their homes.
In-store discretionary spending accounts for about $3 of every $5
in payments that Square processes, according to analysts at
Bernstein Research. Square also earns fees on hundreds of millions
of dollars of loans it makes to small businesses every quarter and
sells to outside money managers, a business that is under threat if
its customers can no longer qualify for credit.
Since the end of February, Square's market value has been
roughly cut in half.
Shares in online small-business lender On Deck Capital Inc. fell
37% on Wednesday to 66 cents, their worst one-day drop ever.
Since the start of the week, On Deck shares are down 61%.
On Deck collects interest on a $1.3 billion portfolio of
small-business loans and earns fees on new loans it extends, two
sources of revenue at risk if its customers have a reduced appetite
for credit and a reduced ability to make their existing loan
payments.
Even companies that help small businesses sell goods online have
fallen out of favor with investors. Shares in PayPal Holdings Inc.,
which processes payments for 24 million online merchants, declined
nearly 16% Monday to $92.72. That was their steepest one-day drop
since spinning out of eBay Inc. in 2015, and shares were down
another 6.6% on Wednesday.
PayPal told investors in late February that it expected
first-quarter revenue to increase by 1 percentage point less than
it had previously forecast because of less cross-border e-commerce
activity. It also has a $2.6 billion portfolio of small-business
loans on its books that could come under stress if the economy
weakens further.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
March 18, 2020 19:40 ET (23:40 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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