Square’s plan to IPO later this year must be the worst kept secret in the financial technology sector. Processing $US30 billion in payments from its millions of merchant customers in 2014, it now offers business lending, payroll processing and data analytics alongside its core POS and card reader offering.
While it’s hard to comment on the value of Square – many claim it is only marginally profitable – there’s no doubt the deepening of its relationship with the SMB sector, via its extended suite of add-on products is a serious threat to the status-quo in POS and payments land. More products ultimately means more revenue – and a better story to tell come IPO time. And while the Australian arm of Square is yet to introduce payment processing alongside it’s point-of-sale (POS) product for the local market, it’s sure to be on its way.
So what does the growing presence of Square mean for traditional POS vendors and payment processors?
mPOS is no longer a micro-merchant game
For a long time, traditional POS players and banks viewed mPOS as something only Ma and Pa Kettle’s jam store at the local markets or Joe Hipster’s food truck needed. Not any longer. Savvy retailers and hospitality venues now see mPOS as mission-critical to their business. For retail it’s all about efficiency and reducing churn. Why make a customer come to the counter when the POS and terminal can go to them? For hospitality its all about removing the friction of bringing the clunky EFTPOS terminal to the table, a requirement now in Australia, and the ability to use a tablet to split bills and add tips easily.
A few years ago Square didn’t fit the bill for regular SMBs, but it’s upped its game significantly. If traditional POS systems can’t do mPOS in the next 6-12 months, then churn to companies like Square is on the cards.
Square now has a laser focus on SMB merchants
Early on, Jack Dorsey, interim CEO of Twitter and founder of Square, was quoted as wanting to redesign the payments experience – for customers and merchants alike. While it is certain this still remains a core focus of the business, they’ve dropped many of the more consumer facing product lines to hone in on what they can do to enhance that experience specifically for SMBs. This represents a strategic pivot for the business. The mobile wallet space is noisy, crowded out by the likes of PayPal, Samsung and Apple Pay. But the SMB banking space? Almost eerily silent, apart from the likes of Xero and a few other cloud entrants.
Today Square has integrations with cloud accounting packages, a data analytics platform and a business app marketplace. POS vendors can replicate this for their customer base but they have to migrate to the cloud, and quickly – something many are dragging their feet over.
It’s not all rosy for the newcomer – there are still plenty of hurdles to be overcome. As POS vendors and payment providers like Tyro know, building a presence in the fragmented SMB community and winning business is no mean feat. Technology also threatens to leapfrog Square, like card-less payments from smartphone apps direct into the POS. Tyro Mobile, a joint solution between Tyro and PayPal is one example.
And the payment sector is tough. While democratising payments and reducing fees for merchants and consumers is a noble cause, Visa, MasterCard and the big payment processors are hardly going to roll-over if it means a hit to their margins.
An IPO could turbo-charge Square, lift it’s visibility and allow it to amplify its message. It can still win the hearts and minds of SMBs, if it can prove to them that it really cares. Focus is the word of the moment for Square, and with the SMB market in Australia still relatively undisrupted, local POS vendors would do well to follow Square very closely over the next few months, if they know what’s good for them.
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Jessica Ellerm 