Square, Inc. – Bringing Disruptive Innovations to Financial Payments

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Excerpts...

Over the years, Square came up with a multitude of applications to make payments easier both for the merchant as well as the customer. Its offerings began to cater to other business needs of the merchants too besides accepting payments. In May 2011, Square came up with the ‘Square Register’ for merchant and the ‘Square Card Holder’ or ‘Card Case’ for customers. Speaking about the new devices, Dorsey said, “Cash registers and credit card terminals are relics of an expensive, complicated and impersonal commercial transaction system. With Register and Card Case, we’re transforming everyday transactions between buyers and sellers into something special.”

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Square strove to push adoption of its new payment technologies by increasing their accessibility to merchants. For this reason, the company gradually entered into a partnership with large retailers to carry the Square devices.In April 2011, Square entered into a deal with Apple, Inc. (Apple) under which Apple began selling the Square Reader at its retail stores in the US for US$ 9.95. However, considering that merchants signing up on Square’s services on its website got the device free, Square offered its customers at Apple stores a US$ 10 credit. Apple and Square collaborated to host educational seminars at the stores to teach customers how to use the device. ......

In October 2012, Square made its payment products – ‘Square Register’ and ‘Square Wallet’ — available in Canada. It priced its services at the same level as in its home market: 2.75% per swipe. Square found the Canadian market attractive due to its physical proximity to the US and because there was no language barrier, apart from the similarity of its operational environment. ....

Over a period of time, Square went in for a bevy of acquisitions, mostly to bring in valuable human resource talent, attain technical know-how, and improve the design aspects of its offerings. In late 2011, Square acquired a small design team. In October 2012, it acquired New York-based design firm 80/20. Speaking about the acquisition, a spokesperson for Square said, “80/20 is an amazingly talented design team. Their experience designing beautiful products for some of the most well-known technology companies in the world will be a huge asset to Square.....

Square sought to expand its global reach as it felt that the potential for global growth was massive. However, analysts expected the company to face severe challenges on this front. They felt that Square’s entry into Latin American, Asian, and European markets would be preceded by a severe struggle to understand the financial systems in those places and adapting Square’s offerings to suit customers’ particular needs in these markets. .....

Square not only catered to the merchant class through its payment devices, but also the customer class through its mobile payment application. This way, Square competed with almost every other payment mechanism. Speaking on this issue, Maurer said, “Anyone who’s going to break the mobile payments barrier in the U.S. has to overcome the resistance to try anything new when everything we have works really, really well, even cash, which is very convenient.......

Analysts observed that the adoption of Square was quite quick considering the fact that the financial industry was generally not very prompt in adopting any new technology. As of May 2013, the company claimed it had more than two million users (US businesses and individuals) and was processing transactions worth US$ 15 billion each year.......

Exhibit I: Information on Payment Aggregators
Exhibit II: A Typical Credit Card Processing System
Exhibit III: Information on Venture Capital Firms that have Invested in Square
Exhibit IV: Retail Stores That Sold Square Devices
Exhibit V: Top Mobile Card Reader Services