square-business-model

How Does Square Make Money? Square Business Model In A Nutshell

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.

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 value model

Mission and Vision

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.

Value Proposition

As the company explains:

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.

As a payment platform the value proposition is articulated around two main players:

  • 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 premises.

Value Proposition for Developers

Image Source: Square Investor Relations – Q3 2020
Image Source: developer.squareup.com

As 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 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 making up the tools, apps, and services provides for sellers.
  • And the Cash App ecosystem is made of customers looking to transfer money, invest in Bitcoin and stocks.

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% to 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.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"