Square Reshapes Itself for Small Businesses

Square on Monday introduced two new services for small businesses: instant deposits; and protection for disputed purchases.

Square, which six years ago began offering square-shaped mobile credit card readers for smartphones and tablets, has shifted its focus away from point-of-sale operations and toward data collection. The company processes millions of credit card swipes daily.

Square has faced increased competition from Amazon, First Data and PayPal, all of which provide credit card readers and accompanying services.

Moving Upstream

To date, Square has brought in more than half a billion dollars in venture capital. Perhaps more importantly, it claims to have drawn in millions of small and mid-size businesses. The company processed more than US$30 billion in payments last year, a 50 percent increase from 2013.

Square collects 2.75 percent to 3 percent for each payment, and half of those fees are split with financial institutions and credit card issuers. That reportedly leaves Square with an approximately 34 percent gross margin.

“Square is moving upstream from payment transactions to small business accelerator with this new pivot,” said Josh Crandall, principal analyst at Netpop.

“It’s smart, as transaction processing is a commodity business,” he told the E-Commerce Times.

“The ability to track previous performance of small businesses that process payments with Square will also mitigate a significant amount of risk inherent in lending to small companies, providing them an advantage over traditional banks,” Crandall explained.

“Providing more support to small business operators will promote word-of-mouth recommendations, and possibly a higher ARPU, if done well,” he added.

Charging Ahead

Since its launch six years ago, Square has introduced several new services. Among them are Square Capital, which provides a cash advance service for merchants; and Square Cash, a smartphone app that allows a user to send money to another user’s debit account for free.

“Square has been expanding its suite of small business offerings and services for some time,” said Greg Sterling, vice president of strategy and insights at the Local Search Association.

“This is a very competitive market, but Square’s payment processing gives it a competitive advantage in other areas where merchants are already using Square Register,” he told the E-Commerce Times. “Square Capital is also smart and addresses a clear need in the market.”

Charging Back

The new offerings for 2015 include the instant deposit service, which has been described as an ancillary data-driving offering. Currently in beta, it will officially launch later this spring and will allow businesses faster access to money that is put into a debit account.

The new charge-back protection, also slated for rollout this spring, will help address disputes that can arise between consumers and merchants. The charge-back protection will cover all Square sellers in the United States and Canada, and it will cover all eligible transactions. There is no fee for charge-backs of $250 or less, with a monthly limit of $250.

Square will work with SMBs to resolve charge-backs. The money won’t be held — and if the dispute is lost, Square will cover the loss.

“They need someone in their corner,” said Susan Schreiner, analyst with C4 Trends.

“This could certainly help them attract more small business consumers,” she told the E-Commerce Times.

“Square is moving into a niche that some of the larger companies are moving away from,” Schreiner added. “Some of the bigger players aren’t paying enough attention to the small business market. Square has a particular focus and is jumping on this opportunity.”

Rounded Service

As it introduces new services for small businesses, Square appears to be scaling back its consumer-facing offerings. Those include Square Wallet, which allows customers to pay for items from a mobile device; and Square Market, which allows businesses to create online storefronts.

Both services have been moved to the back burner, suggesting that the company is continuing to test the waters to see what sticks with its small business customers.

“The question for Square is how broadly to expand SMB services, and how to align that expansion with both market needs and revenue opportunities,” said LSA’s Sterling.

“Square is loved by many who appreciate a paperless economy, but their true impact is with the small businesses which elect to integrate Square into their businesses,” added Netpop’s Crandall. “The more Square can support small business owners, the better.”