In a recent PaymentsJournal commentary, I noted that Square was continuing to diversify into banking and related financial services. Its POS payment transaction service operates in a crowded field and is limited by a commodity-type pricing model. Now Stripe’s expansion beyond POS transactions is really paying off.
While the company announced a slowdown in payment transaction volume due to the COVID-19 induced retail falloff, Square’s Cash App digital wallet plus merchant banking services showed robust growth. It will take a while for retail markets to come back and many small businesses will not return, but Square has positioned itself well by going outside the box to a wider mix of financial services.
The following excerpt from a Wall St. Journal article reports more on the topic:
Stay-at-home orders are certainly taking their toll on Square, but investors are already looking around the corner. In the second quarter, gross payment volume, the lifeblood of any payments company, dropped 15% from a year earlier at Square. But its gross profit—a measure that excludes certain costs of revenue like transaction processing—actually rose 28%. That growth was driven largely by the company’s Cash App, its digital wallet for consumers, where gross profit was up 167%. By July, Cash’s gross profit was up around 200% from a year earlier, the company said.
Meanwhile the seller business, in which merchants collect payments via Square terminals and online, saw volumes return to year-on-year growth in July. More important for the business, online gross payment volume was up 50% from a year earlier and constituted 25% of seller volume in the second quarter. Online is where you want to be in payments these days, with many stores and shoppers shifting to virtual. Card networks like Visa have been reporting double-digit non-physical-card payment growth in the U.S. in July, while physical-card payments are still down from a year ago.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group