Merchant lending is growing faster than the core payments business at both Block and PayPal, according to their second-quarter 2026 results, reviewed by PYMNTS on August 14, 2026. The two companies run the same playbook. The platform watches a merchant’s card sales in real time, uses them to size how much the merchant can repay, advances the funds, and then collects repayment out of those same sales. As the margin on each transaction erodes, that lending is turning into a second source of revenue.
Square sold $1.2 billion of loans in the quarter
Square, Block’s merchant business, processed $72.8 billion in gross payment volume in the second quarter, up 13% from a year earlier. It sold $1.2 billion of Square Loans during the quarter, up from $1.1 billion, and booked a $69.1 million gain on those sales, compared with $62.3 million. Its financial solutions monetization rate, which measures gross profit from Square Loans, Instant Deposit, and Square Card against processed volume, rose to 0.41% from 0.38%.
PayPal’s merchant book tops $1.9 billion
At PayPal, merchant loans, advances, interest and fees receivable reached $1.9 billion at the end of the second quarter, up 14% from $1.7 billion a year earlier. About $140 million of that growth came from the US PayPal Business Loan portfolio and about $100 million from PayPal Working Capital, mainly in Germany.
Payment platforms are not the only lenders pushing into this market. Enova, a specialist lender, originated $1.6 billion in small business financing in the quarter, up from $1.24 billion a year earlier.
| Company | Metric | Q2 2026 | Q2 2025 |
|---|---|---|---|
| Block / Square | Loans sold | $1.2B | $1.1B |
| Block / Square | Gain on sale | $69.1M | $62.3M |
| PayPal | Merchant receivables | $1.9B | $1.7B |
| Enova | Small business originations | $1.6B | $1.24B |
Card acceptance doubles as underwriting
- The sales data comes built in. The platform already sees the merchant’s revenue, its seasonality, and its swings, with no need to ask for financial statements.
- Repayment comes straight out of sales. A share of each day’s card sales is withheld, so repayments rise and fall with the merchant’s business.
- Distribution is cheap. The offer appears in the same dashboard the merchant already uses to track sales.
- The balance sheet stays light. The platform sells the receivables to investors or partner banks and keeps the customer relationship and a fee.
A downturn would hit both revenue streams at once
The edge lasts only as long as the merchant’s sales do. A slowdown in consumer spending would cut processed volume and weaken the loan book at the same time, so two revenue streams meant to complement each other are in fact correlated. In the US, business lending also falls largely outside consumer credit protections. That explains how quickly these products have spread, and it will draw regulatory scrutiny as balances grow.
The push fits a broader trend of payment companies trying to own their financial infrastructure instead of renting it. Nayax applied for a bank charter in early August on the same logic, and Block already runs its own Utah-chartered industrial bank, Square Financial Services. With competition squeezing acceptance margins, platforms are looking for new ways to make money from the same payment flows.
The shift is clear. Payment platforms first competed on volume, then on acceptance services. Now they are monetizing what they know about the merchant. That brings them closer to banking, along with the prudential requirements and customer protection obligations that come with it.