Square launched a reseller program in 2018 as a way to reach larger merchants. Termed Square’s Partner Program, we reported on some successes of the model in retail.
But as we forewarned, hospitality is an entirely different animal.
Square continues to make strides at penetrating larger merchants; now, roughly a quarter of their merchants do more than $500K in GPV (gross processing volume).
Square should care about the restaurant industry because it’s also a growing part of their business, holding at 24% today.
The unfortunate part is that Square seems a bit detached from successful partner models in hospitality.
Square is actively recruiting resellers. They recognize this is a realistic model to support larger merchants, even if it’s not “scalable” in Silicon Valley’s view (nobody ever said brick and mortar was easy – in fact we’re on the record saying pretty much the exact opposite). But the terms Square offers are untethered from market realities.
For starters, Square resellers only get 10% of the recurring SaaS revenue. That comes out to between $6 and $10 per month, depending on the number of terminals a reseller installs. Most SaaS POS companies offer 20% of the recurring SaaS revenues.
On payments, Square pays partners what equates to 0.1% (10 bps) of the total take rate, or a quarter of what resellers would normally earn. For reference, Square gets about 1%, or 100 bps, on that reseller’s merchant. We’ve also been told that Square can cancel the reseller relationship with 30-days written notice and keep the merchant, and all associated processing revenues, as their own. This is taboo, and resellers of other POS systems won’t lose their processing revenues if their contract is terminated with the ISV. For example, NCR is demanding that their resellers onboard all payments processing onto JetPay paper, which effectively means the merchant is not a customer of the reseller. How do you think this is going over?
To top it all off, resellers are expected to provide tier 1, 24/7 support.
This is flat-out unworkable. If Square wants to move upmarket with a channel, they’re going to need to redesign this program. Here’s what we’d do.
- Match market rates for SaaS revenue share. Start with 20%, in perpetuity, and aim for 30%
- Match market rates for payment processing revenue share and develop a way to let the partner put the merchant on their paper. This might make your Payfac model more complicated, but resellers are not going to be interested if you can pull the rug out from under them
- Provide tier 1 support since you already have that remote infrastructure. Escalations should be sent to your reseller who can provide the physical support your remote model can’t
Square didn’t respond to commentary for this article. Hopefully they read this feedback if they’re moving the partner program forward.
