Square has been on a tear as of late. Though still unprofitable, the stock is up 350-some percent since its IPO in late 2015. This compares very favorably relative to industry incumbent processors Global Payments, Worldpay, First Data, and POS company NCR.
We initially dismissed Square. Not only was their core offering very light, targeting merchants who churn in unsustainably high numbers, they were losing a material amount of money. Since brick and mortar is all about distribution, not product, we thought the incumbents would slowly squeeze the life out of them.
But we seriously overestimated the sophistication – and execution – of incumbents.
Since then Square has continued taking marketshare. They’ve forged partnerships with more mature POS software. They’re targeting larger merchants and creating new SaaS tools to make them stickier. And lately they’ve gone so far as to build a new restaurant POS that they intend to go head-to-head with more mature POS systems.
Will this work in Square’s favor? We asked Square to learn more.
We first wanted to know whom the new POS would target. Is it all segments of the restaurant industry (QSR, full service, fast casual, etc.) and all geographies?
Square said they intend to go after all segments of the domestic restaurant market: full service, quick service, and bars. Unlike their previous POS efforts Square for Restaurants enables full service restaurants to offer table management and coursing.
How do the features compare of their new POS compare to Square’s existing POS and other, more mature restaurant POS systems?
Square answered that there are really three categories that make this product different. First is customizability: this system has many more configuration options than Square Register, including access to an open API “app store” where there are no tolls for integrations. Second is conversational ordering, which lets servers input orders much faster, more naturally following the way that customers speak. This can save valuable time in a restaurant environment. Lastly it’s also a self-serve product that can be “set up quickly and anywhere without requiring vendor support.”
This answer has us a bit leery.
We asked Square to expand on this response and they said the distribution strategy for Square for Restaurants would be the same as it was with its other POS products: self-discovery/direct sales with no use of a reseller channel. While self-discovery is no doubt the correct answer for reaching smaller, cost-conscious merchants, it’s not likely to reap dividends with larger merchants. Merchants that do > $1M in annual volume are looking to experts to save them time and provide value. Can you envision the proprietor of a chain of fine dining establishments setting up this new POS on her Sunday afternoon?
Going direct to merchants might make sense, but it’s also really, really expensive as Revel and Toast have proven.
So we asked Square a follow up to this: how would Square be handling support given that it has caught flack for its lack of merchant support in the past?
Square’s response heavily favored a self-support and direct support model. “While Square for Restaurants is very intuitive and many merchants are able to self-serve, we do offer on-demand, first-party service and support.” The remote support will prove to be problematic for many larger merchants, and having a dedicated field support person again sounds really expensive, unless Square is only targeting the metro areas where it already has support personnel.
If you wondered how Square would make money to support these direct efforts, we might have an answer.
We all know that many merchants have chosen Square because of its simple, flat rate processing fees. But 2.75% is much too high for a large restaurant. US restaurant interchange averages around 1.8%. An acquirer probably adds another 0.5% to that for a total of 2.3%. So anything much above that doesn’t seem workable. Yet Square has currently pegged its Square for Restaurant processing rates at 2.6% and $0.10 a swipe. For a $1M/year merchant with $40 check averages, that’s $26,000 (2.6%) + $2,500 ($0.10 per swipe), or an effective rate of 2.85%.
That strikes us as way too high. Square says these rates will be negotiable, but still: who’s getting excited for an effective rate of 2.85% out of gate?
Lastly, we asked about Square’s partnership with Touchbistro, another cloud POS system. Square’s partnership team struck this arrangement with Touchbistro to give Touchbistro merchants access to Square’s other products. This made sense for both parties as Touchbistro wasn’t going to build a suite of additional products imminently (it’s not a $20B company) and Square was struggling to find larger merchants that would stay solvent long enough to make its tools financially viable. But Square for Restaurants would seem to cannibalize those efforts as both companies would now be chasing the same customer base with a POS product.
Square replied with a very diplomatic answer but we would be less than thrilled if we were Touchbistro.
What do we make of this? Square’s new restaurant POS product might well be splendid, but larger merchants are not yet doing self discovery. Square will need a solid distribution strategy and a real support model to span the chasm that larger merchants need. If Square is doing all of this directly, it won’t be cheap, and the customer will surely pay for it somehow. And of course, always be mindful of the risk of a POS with only one payments option. Not to say Square will be an offender, but SMOPP is a silent killer, you know.
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