Square is a merchant service company providing sellers with hardware and software tools to run their businesses. The company’s CashApp enables money transfers and investments in stocks, ETFs and Bitcoins. The company makes money based on transactions via its payment products and through subscription services. Square also makes money via its Cash App.
Table of Contents
Origin story
Square is an American financial and merchant services company based in San Francisco, California.
The company was founded in 2009 by Jack Dorsey and Jim McKelvey. The idea for Square came after McKelvey – a seller of glass bathroom fittings – could not finalize a $2,000 sale because of his inability to accept credit cards as a form of payment.
From a small office in St. Louis, the company was then named Square after its signature square-shaped card readers.
Square’s vision is to enable “everyone to participate and thrive in the economy.”
And the mission is to let “no one to be left out of the economy because the cost is too great or the technology too complex.”
As Square further explains:
So we’re building easy tools to empower and enrich people. Tools that shorten the distance between having an idea and making a living from it—because we believe in fair and square.
Which articulates in:
We’re here to help sellers of all sizes start, run, and grow their business—and helping them grow their business is good business for everyone.
Square was established to give every aspiring business owner an easier way to take credit cards. We’ve built a lot more tools since. From side gigs to sports stadiums, we’re helping power businesses of all sizes and types to help them succeed—no matter what success means to them.
Sellers: who adopt the tools created by Square to run their businesses.
Developers: who instead build, deploy, maintain and grow part of the tools provided via Square.
Therefore, the value proposition is articulated around those two key players.
Value Proposition for Sellers
Image Source: Square Investor Relations – Q3 2020
A set of tools to enable commerce: from managing payments to PoS, payroll, invoices, and promotion.
No-lock-in: third-party tools are easily integrated within the Square ecosystem.
A simple and compelling set of tools: the Square platform is also relatively simple for sellers to set up, run, and its payment tools are also well integrated within the seller’s premises.
As with any development community, the more those developers are given the opportunity to build products that can be monetized for a large audience, the more it will be easier to keep the community alive.
Therefore, developing tools for the Square App Marketplace is indeed interesting for developers because they can:
Acquire new customers by building up tools for the marketplace.
Keep all the revenues from the app’s sales (the seller retains 100% of the revenues generated via the Square marketplace).
Cash App Value Proposition
Another key value to take into account is related to the Square Cash App, which enables users to transact, invest and deposit Bitcoin through the platform.
While the Cash App integrates also within Square’s seller and developer ecosystem, in part, that has a life of its own.
Indeed, some of the value propositions intrinsic to the Cash App are:
Easily send over the money.
Easily invest in Bitcoin and other assets.
Square technological model
Image Source: Square Investor Relations – Q3 2020
Square’s technological model moves along its two main core products/ecosystems:
The sellers/developers ecosystem makes up the tools, apps, and services provided for sellers.
And the Cash App ecosystem is made of customers looking to transfer money, and invest in Bitcoin and stocks.
Value Proposition for Developers
Image Source: Square Investor Relations – Q3 2020
Image Source: developer.squareup.com
As with any development community, the more those developers are given the opportunity to build products that can be monetized for a large audience, the more it will be easier to keep the community alive.
Therefore, developing tools for the Square App Marketplace is indeed interesting for developers because they can:
Acquire new customers by building up tools for the marketplace.
Keep all the revenues from the app’s sales (the seller retains 100% of the revenues generated via the Square marketplace).
Cash App Value Proposition
Another key value to take into account is related to the Square Cash App, which enables users to transact, invest and deposit Bitcoin through the platform.
While the Cash App integrates also within Square’s seller and developer ecosystem, in part, that has a life of its own.
Indeed, some of the value propositions intrinsic to the Cash App are:
Easily send over the money.
Easily invest in Bitcoin and other assets.
Square technological model
Image Source: Square Investor Relations – Q3 2020
Square’s technological model moves along its two main core products/ecosystems:
The sellers/developers ecosystem makes up the tools, apps, and services provided for sellers.
And the Cash App ecosystem is made of customers looking to transfer money, and invest in Bitcoin and stocks.
Technology for sellers
Image Source: Square Investor Relations – Q3 2020
Square provides a suite of cloud-based software solutions to help sellers operate, run and manage their businesses.
The whole software architecture is designed with a simple-to-use interface, which is mostly self-serving.
Employees within seller organizations can quickly learn how to use the Square interface for managing transactions and much more.
The suite of tools comprises the Online, Point of Sale, Developer Platform, Customer Relationship Management, and Team Management products.
Therefore, the products can be broken down into:
Point of Sales Solutions
A set of tools enabling digital receipts, payments, tracks sales, inventory, customers’ purchase histories, and more.
These products are monetized either via a subscription fee or on a transaction basis:
Square Point of Sale: a general-purpose point-of-sale.
Square Appointments include support for booking, retail sales, invoicing, and payments.
Square for Retail includes barcode scanning, advanced inventory management, support for thousands of items, cost of goods sold reporting, purchase orders, and vendor management.
Square for Restaurants is primarily a more advanced version of the service specifically thought for the food and beverage industry. This includes table, order, and course management.
Products to facilitate sales online and via social media
A suite of tools to make it easy for sellers to business online (and via social media).
Square Online is a tool making it easy to build a website and online store and to sell on Instagram and Facebook.
Square Online Checkout enables businesses to sell online without a website by creating a checkout link.
Square Invoice is a digital invoicing solution with secure online payment acceptance.
Square Virtual Terminal enables sellers to use a computer as a card terminal.
Business and customer relationship management products
This set of tools enables sellers digital tools to streamline their operations:
Square Team Management to schedule staff, view team performance and sales analytics in real-time and used Square Payroll to pay employees.
Square Contracts provides template-based digital contracts with e-signature support for uses.
Square Loyalty, Marketing, Gift Cards, and Feedback enable sellers to engage with their buyers in-store and online.
Square Dashboard provides real-time data and insights about orders, items, inventory, customers, employees, payments, marketing, and loyalty performance.
Hardware/physical products for the shop
Image Source: squareup.com
Square provides a set of hardware products, custom-designed allowing sellers to accept cards by Visa, MasterCard, American Express, Discover, JCB, Interac Flash (in Canada), e-Money (in Japan), and eftpos (in Australia).
Some of the hardware products Square offers comprise:
Magstripe reader for swiped transactions of magnetic stripe cards.
Square Stand transforming an iPad into a payment terminal or full point of sale solution.
Square Register is an all-in-one combining hardware, point-of-sale software, and payments technology.
Square Terminal is a portable, all-in-one payments device and receipt printer.
Financial services for sellers
When it comes to payments Square acts as both the merchant of record for the transaction as well as the payment service provider offering the following services:
Managed Payments comprising next-day settlements, payment dispute management, data security, and PCI (payment card industry) compliance.
Risk Manager provides insight into online payment fraud patterns and enables them to set custom rules and alerts to manage risk.
Square Card is a free business prepaid debit card that provides a way for sellers to spend and manage their funds, enabling sellers to spend their proceeds as soon as they make a sale.
Square Capital makes it easy to loan to qualified Square sellers.
Square Payroll facilitates sellers in hiring and onboarding employees pay wages and associated employee taxes and offers employee benefits.
Technology for Developers – Developers Platform
The developer’s community is a key part of the success of Square business model.
The developer platform consists of two main parts: APIs and development kits. These empower developers in easily building tools on top of the Square ecosystem and marketplace.
These comprise:
Payment APIs support in-person, online, and mobile payments. Square Reader SDK for developers to customize checkout experiences for sellers (e.g. self-ordering kiosks powered by Square).
Commerce APIs with more than 30 commerce APIs, to create and manage orders, subscriptions, product catalogs, inventory, and more, so that developers can build applications for the Square marketplace.
Technology for Investors
Image Source: Cash App – Apple Store
With Cash App, individuals/retail investors can manage their money either by:
Storing, Sending, and Receiving Funds: individuals can receive money from another Cash App customer. Or they can send funds, or keep them in storage via the app.
Spending Cash Card which consists of a debit card linked directly to a customer’s Cash App balance.
Investing retail investors can use the app to invest in US-listed stocks, exchange-traded funds, or bitcoin.
Square distribution model
Image Source: Square Investor Relations – Q3 2020
Some of the go-to-market and distribution/marketing strategies comprise:
Brand affinity: over the years Square has built a strong brand, over a claimed superior service with a 63 Net Promoter Score, which as the company explains is much higher compared to traditional payment services.
Direct marketing: especially in the form of email marketing, in-product notifications, and messaging
Peer-to-peer (P2P) transactions as the primary acquisition channel for Cash App.
Cash App also leverages paid marketing, referrals, advertising spend, partnerships, and social media campaigns.
Square revenue model
Source: Square Inc. Financial Statements 2020
As the company highlights the seller ecosystem is composed of “30 distinct software, hardware, and financial services products” monetized through a combination of transaction, subscription, and service fees.
Since 2019 the company has also made a substantial chunk of its money via the Cash App Bitcoin investing activities, that due to the massive price increase of Bitcoin also became the major revenue stream for the company.
Seller ecosystem revenue model
On the seller revenue model, Square uses a sort of razor and blade strategy. In this case, the razor is the hardware sold mostly at cost or even a loss, while the company generates revenues at much higher margins on the transaction and subscription services side.
Transaction-based revenues: here Square charges its sellers a transaction fee for managed payments solutions, in most cases as a percentage of the total transaction.
Subscription and services-based revenues: this comprises the revenues from Cash App, Square Capital, and Instant Transfers.
Hardware revenues include revenues from sales of contactless and chip readers, Square Stand, Square Register, Square Terminal, and third-party peripherals.
Cash App revenue model
Image Source: Square Investor Relations – Q3 2020
Business charges
Whenever a business accepts a Cash App payment, Square charges a 2.75% fee. This occurs in one of two ways:
When an individual makes an in-app P2P payment to a business.
When an individual uses the Square Cash Card to make a payment to a business. The Cash Card is a prepaid Visa debit card linked to each user’s account.
Expedited transfer and credit card payments
Consumers can expedite fund transfers from the Cash App account to a nominated bank account for a 1.5% fee.
This enables the consumer to have the funds land in their account immediately and not after the standard two or three days.
Personal payments can also be made via a linked credit card. For this service, Square charges a 3% transaction fee.
Bitcoin exchange
In late 2017, Square added bitcoin functionality to Cash App accounts. This enabled users to buy and sell bitcoin using the funds in their accounts. For approximately two years, this service was free.
Then, in 2019, Square began charging fees as high as 1.76% for every purchase of bitcoin. Cryptocurrency has now become so popular that the service is one of Square’s most profitable revenue streams.
The company also charges a premium for facilitating the exchange – mostly between 1 and 4%.
For example, Square may purchase $5,000 worth of Bitcoin from one customer and then sell the same amount to another customer for $5,200.
Generally speaking, the precise fee varies according to fluctuations in bitcoin value.
Business Model Highlights
The Square business model is developed around two business ecosystems (seller/developer ecosystem and Cash App Ecosystem).
Square is an American financial and merchant services company. The company’s idea was born after founder Jim McKelvey could not accept a credit card as payment for a $2,000 piece of tapware.
Square drives most of its revenue through its P2P Cash App service. For consumers, transferring funds using the basic version of the app is free. For businesses, Square charges a flat 2.75% fee for every eligible transaction.
Square makes money by charging consumers 1.5% for expedited fund transfers. The company has also seen significant growth in its bitcoin exchange service. For a 1-4% fee, Square customers can buy and sell bitcoin using account funds.
On the seller revenues side, Square follows a razor and blade strategy where the hardware is sold at cost or loss, while the company makes money based on transaction revenues and all the other services developed on top of it.
Square leverages a set of marketing and distribution strategies, moving along a strong brand built over the years and direct and online marketing channels.
Key Highlights
Origin Story: Square was founded in 2009 by Jack Dorsey and Jim McKelvey. The idea was born when McKelvey, a seller, couldn’t accept credit cards for a sale. It was named after its square-shaped card readers.
Vision and Mission: Square’s vision is to enable everyone to thrive in the economy, while its mission is to ensure no one is excluded due to cost or complexity. They believe in fair and square empowerment.
Value Proposition for Sellers: Square provides tools for commerce management, from payments to PoS, payroll, invoices, and promotion. Sellers benefit from a no-lock-in policy, third-party integration, and simple yet effective tools.
Value Proposition for Developers: Developers can build tools for the Square App Marketplace, acquire new customers, and retain 100% of the app’s sales revenues.
Cash App: Square’s Cash App allows users to transact, invest in stocks, ETFs, and Bitcoins. It’s a separate ecosystem with value propositions like easy money transfers and investments.
Technological Model: Square’s technology is centered around its two ecosystems: the sellers/developers ecosystem and the Cash App ecosystem. It offers a range of tools for commerce, payments, and financial services.
Hardware Solutions: Square provides hardware products like card readers, stands, registers, and terminals, enabling sellers to accept various forms of payments.
Financial Services: Square offers payment solutions, risk management, Square Card, Square Capital loans, and payroll services for sellers.
Developer Platform: Square’s developer platform empowers developers to build tools on top of the ecosystem, utilizing APIs and development kits.
Cash App Revenue Model: Square generates revenue through Cash App via business charges, expedited transfers, credit card payments, and its Bitcoin exchange service.
Seller Ecosystem Revenue Model: Square follows a razor and blade strategy, selling hardware at cost while making money through transaction-based revenues, subscription and service fees.
Distribution Strategies: Square leverages brand affinity, direct marketing, online search optimization, display advertising, mobile advertising, partnerships, referrals, and public relations for marketing.
Key Revenues: Square’s major revenue sources include transaction fees, subscription fees for services like Square Capital, and Cash App activities like Bitcoin trading.
Overall Impact: Square aims to empower sellers, individuals, and investors through its user-friendly tools, financial services, and payment solutions.
Growth Areas: Square’s Cash App, which offers P2P payments and cryptocurrency trading, has become a significant revenue driver for the company.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
Image Source: developer.squareup.com
