Square Now Wants to Move Upmarket… Good Luck


In Square’s most recent earnings call, Jack Dorsey, Square’s moonlighting CEO, announced that they would focus more on “upmarket” merchants in the future.

Translation: Square’s customers are dropping like flies and they need more financial stability.

Square has served the micro merchants payments providers traditionally eschewed. Square bragged about a 2 million merchant user base at IPO, though 98.88% of those merchants processed less than $125,000 annually. Here’s an awesome graphic by the Strawheker group.

To provide more context, Strawhecker compared that to the average US merchant.

For the finance eggheads out there, this is what potential revenue translates to for the merchants Square serves.

Now you see why Square is chasing other tools like loans and appointments: they don’t make very much on their core offerings. Factually-speaking, they lose a hundred million a year on their processing, but who am I to say it won’t work.

We already know brick and mortar has a high failure rate (about 25% annually), but I’d argue it’s materially higher in the Tier 1 segment Square serves. That 25% probably grows to 40% in the micro merchant segment, and might be 10% once merchants eclipse $10M in annual revenue. That 25% is a smooth mean that belies the real turmoil Square sees.

Square’s desire to go upstream is great in theory, but not so sure how it will play out in practice. Let’s dissect this gem from Square’s earnings call.

Our success with larger sellers is due to multiple factors. First, larger sellers join Square because of our products’ differentiated ease of use. … Second, we have focused on bringing payments together with additional services into one cohesive ecosystem. …Third, larger sellers benefit from fast access to capital, whether it’s next-day settlement of funds, Instant Deposit, or Square Capital loans

Hmm what, “differentiated ease of use”? Sure, compared to legacy POS systems, it’s a night and day difference. But in case you haven’t noticed, we’re seeing a proliferation of cloud POS companies as hardware and software costs nosedive. I could ramble off about 25 without taking more than two seconds between responses. These cloud companies have the same ease of use Square claims.


Speak more of this, “… bringing payments together with additional services into one cohesive ecosystem.” You mean how Revel offers accounting and other solutions on their platform? How Clover has the world’s largest – and useless – POS app store? I’m not that drunk, Dr. Dorsey.


Oooh but this, “fast access to capital…” is alluring. You mean to say these larger businesses have no options to get loans from conventional banks, Able, OnDeck, Kabbage, Can Capital and scores of others? Few loan providers wanted to extend loans to micro merchants for very obvious reasons, but now you’re swimming in waters where Olympians compete.

I don’t even understand Mr. Dorsey’s comment that, “larger sellers join Square…” No they don’t. 98.88% of your merchants are the smallest of the Tier 1. If you want me to believe that, then why did Square partner with Vend and Touchbistro? If Square’s super-awesome-POS was so super-awesome, why partner? If Square’s payments are so superior, why partner with competing processor Upserve?

Here’s why:

Square cannot deliver relevant solutions “upmarket”

Square’s actions totally contradict its claims. Its “cohesive ecosystem” is being torn apart as it finds difficulty competing in what was supposed to be core competency: POS and payments. Now Square is prostituting its disparate, non-core products in hopes that it can stymie its epic loss-making.

I will, however, give Square credit for one thing: flirting with change. Square is very much like Micros and NCR – they’re always the smartest people in the room; just ask them. At least Square is toeing progress while Micros and NCR continue to piss upstream. But I won’t put Square on a pedestal either: I still have dozens of unreturned emails from Square management. Shame on me for thinking you could use email without hailing from Silicon Valley. If only I were as smart as Square…