The news: Block highlighted the success of using alternative underwriting to expand access to credit through Square Loans, Cash App Borrow, and Afterpay.

Block evaluates users’ regular paycheck deposits, bill payment consistency, cash flow patterns, and spending habits. Square Loans also factors in business performance. 

Block’s reasoning: From Block’s perspective, traditional credit evaluations that shape credit scores exclude many worthy borrowers who can borrow responsibly. It argues its internal calculations paint a more accurate picture of individual users’ financial health than the “black box” of a subprime credit score. 

Block highlighted how widespread financial illiteracy often traps young people into poor credit status and hurts worthy borrowers from marginalized communities in a white paper posted Tuesday.

Credit access expansion: Block said its underwriting can reach traditionally “high risk” borrowers with successful results.

• 70% of Cash App Borrow active users have credit scores below 580, but repayment rates exceed 97%. Most Borrow limits are well under $1,000 (sometimes as low as just $20). 
• Square Loans approved 88% of applicants, whereas a traditional underwriting model would have accepted 54%.

Our take: Expanding credit access beyond typical markers of financial responsibility underscores Block’s eagerness to penetrate into communities often skipped over by legacy institutions for borrowing. 

Block said it wants to work with policymakers, regulators, and credit bureaus to remake credit reporting and underwriting standards, but it first needs to demonstrate that its method is scalable to larger loans and revolving balances. Offering a $20 loan is a long way from underwriting an auto loan or credit card.

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