Square Announcement disingenuous, or at the very least ambiguous

Square made a number of announcements on Oct 10th, the most prominent being that it is now processing $2B a year (up from $4 million per day) and that it has ramped up to 800,000 merchant accounts from 500,000 previously. It also mentioned that at 800k, it now represents 10% of the combined merchant base of MC/Visa. Truly laudable? Hardly. You see, square, being a payment disruptor did not start out by stealing merchants from down underneath MC/Visa.

They grew by creating their own market, their own value networks that were once beneath the purview of card companies. These low volume merchants, who could not afford the cost of having a POS, and encumbered by the myriad fees levied by card issuers and everyone in between, were not considered the right cut. Square, realizing an untapped market (or creating its own market) grew rapidly as it captured mindshare by a simple product that was centered around an elegant customer experience. It required no shift in customer behaviors, it was the same old plastic form factor, yet made simpler.

However, as Square grew, and moved in to traditional value networks, where they encountered incumbents like Verifone and other POS makers (who Square plans to disrupt and make obsolete), its aspirations grew. Yesterday’s announcement is a reflection of being fast and loose with numbers. Square is reported to lose money on transactions that are less than $6, as they have to pay interchange fees out of their own pocket. And Square, in its thirst to grow, has been handing out card readers for free or closer to that, with the associated merchant setup costs coming, once again, from their own pocket. Looking at the $2B figure, impressive as it may seem, is a mere $2500 averaging across 800,000 merchants. That indicates that Square has not managed to attract many high volume merchants yet, and quite likely will not recoup its costs (or begin to see many purchases where they do not bear the burden of interchange) any time soon. That is, unless their transaction volume goes north..way north. Till, then they should stop talking their mouths off (as in the case of Rabois bad mouthing NFC) and acquiesce to doing what they do best – disrupt the payment industry. That is what they are good at.

Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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