Square has announced the debut of the Square Card in Canada, giving merchants real-time access to funds processed through the Square platform. In a typical merchant services account used by businesses to accept credit and debit cards from shoppers, transactions are processed overnight and the funds deposited into the merchant’s bank account the following day. In a traditional, stable, supply chain environment where steady suppliers are invoicing merchants for inventory purchased, merchants have adequate cash flow from daily sales to pay for supplies and inventory as invoices become due.
As the COVID-19 global pandemic continues to interrupt almost every link in the supply chain in new and unexpected ways, merchants frequently find themselves shopping online to source inventory and supplies that are unavailable through their regular supplier. In this scenario, merchant must wait for funds to be fully available in their business account before using their debit card to make these purchases, effectively creating delays in their cash flow.
The Square Card funds are available in real time to the merchant, just like accepting cash enables the merchant to immediately make cash payments to others. For merchants using external bank accounts, Square offers the option of linking that bank’s debit card for real-time payments, much the way the Square cash App facilitates real time P2P payments.
While this new feature gives unparalleled utility to merchants using Square to process their card transactions, it also creates a very tight risk tightrope for Square to manage. Merchant processors use the traditional overnight clearing window to run risk algorithms that flag transactions that might be fraud or otherwise prone to being charged back. Funding to the merchant for those transactions is suspended until further due diligence can be completed to ascertain the legitimacy of the charge. Paying merchants for sales in real time means that Square is sacrificing most if not all of its margin for error here.
In this context, the more disciplined Canadian market is a good pilot region for this program. Merchant processors and acquirers continue to battle growing merchant fraud in the US region, so it will be interesting to see if Square technology can make a real-time funding product viable in the US market.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group