It’s no wonder digital payments have been contributing a lot to the success of today’s businesses. With the drastic change in customer’s behavior and their demand for convenience and comfort everywhere they go, the digital payments trend is gaining huge momentum.
However, adopting technology is not that easy for small businesses as it requires extensive training, expert staff, hardware and software expenses. This is exactly why Square came into the picture. It has shed light on easy ways to integrate digital payments and other digitization techniques. The best part is it offers brilliant online payments and business solutions for affordable prices for everyone and free often.
After all, Square was born to make running a business easy for everyone no matter the size and their goals.
Wondering what Square is and how does it make money? Well, let’s discuss that in this article analyzing its business model. So, shall we?
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What is Square?
If you are unaware of what Square is, this is for you.
Square is one of the best Point of Sale and business solutions providers founded in February 2009 in St. Louis, Missouri. Square, Inc. (SQ) is now headquartered in San Francisco, California, US. The company was founded as an American financial service, mobile payment and merchant services provider by Jack Dorsey, co-founder of Twitter and his friend Jim McKelvey.
Someone truly said necessity is the mother of invention. The founders started the company when Jim was unable to complete the sale because he couldn’t accept a credit card. They invented their first product called Square Reader that accepts credit card payments. However, they didn’t stop there. They introduced multiple products and services as well for helping entrepreneurs to run their businesses with the aid of technology.
Thus, the company has created a great impact on small, medium and large businesses in adopting digital technology in their businesses.
Read: How Shopify makes money – Shopify Business Model
Who are its Customers?
Bigger markets and bigger businesses are key challenges for small businesses. But the game has changed with the evolution of technology. However, those who adopted only survived and are still surviving.
As Square targets these numerous small businesses, the company has become so successful while also helping its customers grow.
It offers software, hardware and outstanding POS related services to boost the growth of businesses. Over 2 million businesses are using Square for online payment transactions, business analytics, and digitization.
Of course, many companies fueled the benefits of online payments and contact less payments. But Square sits at the top of the list of best POS service and business solution providers. Not to mention, that is why people are curious about how the company makes money and its revenue. So, without any further ado, let’s get into that. However, before diving right into Square’s business model, you need to know its products and services to better understand its income strategies.
Square’s Products & Services
Having said that Square has launched a multitude of products and services for helping entrepreneurs sell online, manage money, attract customers, manage and pay teams, and extend and develop business. It helps all types of businesses namely, retail, food and beverages, professional services, and enterprises. So, in short, its products and services are organized into three categories.
1. Payments & POS
2. Finances & Team Management
3. Marketing
Square Payments & POS
As Square’s mission is to help every business irrespective of its size to thrive in the economy, it has launched a varied range of payments & POS services and products. Okay, enough said! Let’s see what those are.
Square Readers – So as said already, Square Reader is the first Point of Sale (POS) product created by the company. Square Reader is used to accepting credit card payments by connecting it to the mobile device’s audio jack. All the Square Readers work with the Square Register mobile application.
Square Stand – This turns an iPad device into a POS terminal. It is integrated with a magnetic stripe reader and connects to Square Reader for NFC (Near Field Communication), EMV chip cards, barcode scanners etc.
Square Magstripe Reader – This Square Magstripe Reader accepts payments when it is plugged into the mobile device’s headset jack. So, on swiping cards, payment is enabled.
Square Reader for EMV chip cards & NFC – These let sellers receive the payments by swiping or dipping the cards and EMV chips. Also, the Readers for NFC enable contactless payments via mobile wallets such as Apple Pay, Android Pay, PayPal etc.
Square Register App – It is used to accept payments even if there is no connection. Sellers can send receipts, reports, track inventory, adjust discounts, tips, taxes and collect customer feedback. The app is used for a wide range of activities such as to help sellers accept cash, checks, gift cards along with debit and credit cards.
Team Management – Square helps business owners manage their teams smoothly offering advanced features. These services include managing multiple stores from a single account, view sale reports and employee time cards.
Square Analytics – Sellers can view and understand how their business is performing with the help of Square Analytics right from the Square dashboard.
Square Invoices – This helps sellers to create instant custom digital invoices and receive payments securely.
E-Gift Cards – It lets sellers offer gift cards, allows buyers to redeem them and track them.
Online Store & App Marketplace – Square helps entrepreneurs launch online stores with advanced website features with the help of BigCommerce, Weebly and other companies.
It also has an app marketplace that helps sellers choose third-party apps integrations for their business to run efficiently.
Square Appointments – This is an appointment scheduling software that enables sellers to schedule appointments, manage calendars, and view their clients’ and customer’s visiting history.
Square Cash App – This is the most popular app to send and receive electronic payments fast and easy. In fact, Square makes most of its revenue from this app. In Q3 2020, it generated about $1.6 billion in bitcoin revenue. Both businesses and individuals can sign up and use the Square Cash app.
Square Financial Services
As mentioned above, Square operates to help every business to flourish with profits, it constantly comes up with outstanding financial services. It offers business debit cards, enables invoices, online checkout links, virtual terminal, business loans, bank transfers for sellers to help their businesses adapt to new technology trends and grow.
So Square Financial services include Payroll, Employee Benefits, and Square Capital.
Square Capital – Square helps business owners with funds in the form of instant loans for expanding their business, buying equipment, increasing inventory etc.
Sellers will have to agree to pay back a fixed percentage of daily card sales in return.
Employee Benefits – The company supports business owners in making their employees happy by offering amazing employee benefits. It offers health insurance, 401(k), bonus, pre-tax benefits etc. without putting extra weight on the company.
Square Payroll – Like employee benefits, Square Payroll helps sellers to make the payments to staff easy. The Square Register tracks employee’s working hours and calculates the wages. Zero burdens on sellers, so that they can fully focus on improving the business.
Square Marketing Services
Square Customer Engagement – Customer engagement is a crucial part of the business as good engagement keeps the customers and drives them to come back again and again. Hence, Square has come up with amazing customer engagement services such as email marketing, and social media marketing.
Read: Instagram Business Model – How Instagram Makes Money
Also, as the best customer experience is the key to better customer engagement, the products such as Square invoice, Square Register are designed to provide a great customer experience. Hence, customers naturally start engaging with the business and its products with these apps. Thus the tools act as brilliant marketing solutions.
Square marketing costs from $15 to $35 per month for 500 to 2000 customer contacts.
Loyalty Program – Square enables its sellers to attract customers and grow their count with loyalty programs. The best part is all the services the company offers can be done right from POS or Square’s online website.
The pricing for this loyalty program is around $45/month to $105/month per location. The costs vary based on the number of loyalty visits.
So, these are the key products and services of Square. Most of the offerings cost low to an average amount whereas some of the products are available for free. So, the business model is almost revealed in this section. The only thing that is left is how much this giant online payments and business solution provider makes, right? Okay, however, let’s also see how exactly it makes money and its expenses along with it.
Square Business Model
You must be wondering how much Square bags with a multitude of products and services. It made about $4.71 billion annual net revenue in 2019. It posted $36.5 million net income in Q3 2020 and the gross profit rose 58.9% to $794.5 million. Also, it is reported recently that Square stocks are overpriced.
The company receives payment and small fees in exchange for its offerings. This is how Square makes money.
How Square Makes Money?
Payment Processing Fees
As online payments service is the core business of the company, square receives major revenue from transaction fees. It charges a certain fee of 2.75% of the total transaction value for all types of payment processes (card-present and invoices). It charges 3.5% of the total transaction and an extra $0.15 per transaction for contactless payments.
Software & Other Services
Square bills a monthly bill for using its software and other services such as Square invoices, Square Register, payroll, marketing, Square Appointments, Square Customer Engagement etc.
Square Capital
As said in the above section, Square demands a fixed percentage from daily sales as an exchange for providing instant funds.
Hardware Revenue
Square also earns a notable income from selling its hardware like Register, Terminal, Reader, Stand for chip and contactless etc.
Acquisitions
Square acquired multiple companies such as Weebly (for $365M), LocBox, Stitch Labs, Verse, Dessa and a few others. Though the acquisition amount and the profits from all its acquisitions are not disclosed, it’s assumed that it makes a great revenue from its companies.
Square has recently announced its partnership with on-demand online delivery company, Postmates. Square’s customers (sellers) can now dispatch couriers right from their POS with the help of Postmates.
Costs & Expenses
As you can see Square has a handful of ways to make revenue, it also has to bear costs and expenses. Let us quickly see what are the expenses posed on Square.
- Operating Costs – Salaries, sales, marketing and advertising, advance losses, customer assets, development costs etc.
- Transaction Costs – The company has to pay interchangeable costs and transaction fees to bank settlements, card-issuing financial institutions and third-party processors.
- Hardware & Technology Costs – It has bear costs of Readers, Stands, devices, manufacturing, packaging, and fulfillment costs. In the same way, it has to invest in software and technology to provide better service to its customers.
Bottom Line
As you have made it to the end, hope you have understood how Square makes money and its revenue model. The company holds a huge business as it has a wide range of products and services. Hence, though it bears heavy costs and expenses, it can make great profits. Moreover, its target market is so powerful that it created scope to both boost its customer’s business and its own business, which is a more compelling business strategy.
