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How does Square make money? Credit card processing itself is a tight, low-margin business. Verifone is only worth a couple $B for that reason. Does Square make
by ng12 9y ago
How does Square make money? Credit card processing itself is a tight, low-margin business. Verifone is only worth a couple $B for that reason.
Does Square make that much money off services?
- rokhayakebe 9y agoFirst you sign up X million businesses with the lowest possible processing fee, maybe you even loose money. Then you sell them SASS to manage their operations and sales.
- Scaevolus 9y ago"Square has taken aim at the much larger goal of providing a tech-savvy alternative to the big banks, expanding out from payments to lending and online deposits." Note also that Square is not actively losing hundreds of millions of dollars a year, which is a point in favor of its value.
- ng12 9y agoBut Square's been "taking aim" at new markets for years: remember their Google Wallet competitor? Or what about Square Cash? I also remember them launching tons of new services (e.g. appointment scheduling) a few years ago, is there still momentum there? Square's had a firm hold on hip small businesses for half a decade, I'm still not convinced they can use that as leverage to build profitable services.
- thinkythought 9y agoAnecdote, but Cash is just as popular as Venmo among my friends/acquaintances/colleagues(mid-late 20s, pacific northwest). Everyone has both installed because you never know who's going to prefer which one or just happen to open that one first.
- ng12 9y agoVenmo isn't obviously profitable either, last I read PayPal was still trying to sell it to B2B merchants. Seems like more of the same problem -- lots of momentum, little monetization.
- StudentStuff 9y agoWell, how do you monetize such a service without Google Wallet, Square Cash, and <insert new entrant of the week> eating you alive? Everybody is running away from Visa/Mastercard processing and toward ACH (Dwolla & Popmoney) or debit based systems (Google Wallet, Venmo), and any fees essentially force whatever volume you have to jump to a competitor. Worst case, you'll see people using online bill pay to mail eachother's banks checks as that is free and low effort. People just don't want to pay to move money friend to friend, and the US is an anomaly with our extremely high credit card processing charges, where we're at 1.5% to 2% in interchange, the rest of the world is below 1%.
- wonder_bread 9y agoThat's very interesting, among my social circle (low 20's Northeast New England Area) Venmo has an implicit monopoly on the service. I doubt any of my non-cs friends have even heard of Square's offering.
- StudentStuff 9y agoVenmo is definitely king in Seattle, but people really don't understand how risky Venmo is for Craigslist and Facebook transactions. Since its F2F, if the person who sent you money contacts Venmo, that money will be returned to them without the ability for the receiver to get a word in edgewise.
- marrone12 9y agoReally? I've tried to contact Venmo in the past about an errant send and they told me I was out of luck.
- brandnewlow 9y agoThese points are addressed clearly and interestingly in TFA.
- deleted 9y ago[deleted]
- chaseadam17 9y agoSquare Cash is currently #38 on the chart for top free apps in Apple's app store. No other financial apps above it. Might be good momentum with that product at least.
- giobox 9y agoI'm curious what that actually means in real download numbers now. Remember in iOS 11, iOS games were split out into a seperate top chart, which I imagine means waaaaaaaaaaay less downloads are now needed to break the App Store's top 200 ranking for all other app types. Worth bearing in mind if using this as evidence of momentum.
- synaesthesisx 9y agoI wonder if that momentum will last when Apple Pay Cash rolls out next month - why install a third party app to send money to friends when you can do it via iMessage?
- wonder_bread 9y ago'Venmo' itself has become a verb rather than just a service so I doubt either of them have the necessary momentum to take these services to anything more than nominal levels of volume relative to the market lead
- sidegrid 9y agoWhat's a Venmo?
- Mz 9y agohttps://www.clickondetroit.com/consumer/how-venmo-became-a-verb-for-millennials https://www.clickondetroit.com/consumer/how-venmo-became-a-v...
- whostolemyhat 9y ago
- deleted 9y ago[deleted]
- rco8786 9y agoI use Cash far more than I use Venmo these days. Like maybe 90% Cash 10% Venmo.
- burnte 9y agoEvery week I see more friends and local small businesses using Square Cash. Ever month I see more local shops using Square POS with the fancy iPad holders and readers, etc. The feature set for those of us who use it to send invoices continues to grow, too, making them really a great solution.
- ForHackernews 9y agoThe credit card companies themselves have pretty healthy margins. Maybe in the long run, Square could cut into Visa's 3% or whatever.
- mprev 9y agoGenuine question: where in the world does Visa make anything close to 3%?
- whipoodle 9y agoIt's just a slight misunderstanding. Visa (or Amex/Mastercard/other card networks) don't take 3%, but payment processors take a slice which is in that ballpark. To a business, all that really matters is when you accept a credit card payment you kiss a few percentage points goodbye, so it's easy to misconstrue as the card network taking that cut.
- mprev 9y agoIf you look at Square or Stripe, for example, the fees are way south of 3%. Sure the banks, processors and gateways take a fee but it's nowhere near a total of 3% these days. That was more my point.
- bpicolo 9y ago> Visa (or Amex/Mastercard/other card networks) don't take 3% The banks get it. It's the interchange fee
- ForHackernews 9y agoYeah, I don't know how that fee is divided up between processor/payment network/bank, but it's a fair chunk of change, all told.
- StudentStuff 9y agoThe lions share is going back to whoever issued you a credit card. If its say an airline card, that'd be rewards 2 which ranges from 1.65% + $0.10 per transaction all the way up to 2.7% + $0.10. Then you add on network & platform fees (0.1% + $0.06 per transaction) and whatever minuscule profit margin your ISO/MSP can get and your at 1.5% to 2% on average. Visa Interchange Rates: https://usa.visa.com/dam/VCOM/global/support-legal/documents/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/dam/VCOM/global/support-legal/documents...
- imustbeevil 9y agoThe same way any company becomes profitable; they spend less than they earn. It doesn't seem like the kind of thing you'd have to wonder about. Just like restaurants can be profitable in a low margin industry, it takes incredible awareness of the costs of your business, and the ability to give greater value to your customers than it costs you to produce. Most companies, specifically tech companies, way overspend. Stripe seems not to do that.
- dang 9y agoPlease don't post unsubstantive comments. Edit: the parent comment was originally just its first sentence. Kinda not nice to do that without saying so.
- imustbeevil 9y agoI didn't mean to misrepresent your reply, I just thought providing more information would make my comment less insubstantial. Sorry for not indicating it was editted, I'll be sure to do so in the future.
- mitchellst 9y agoIt's true that processing is low margin, but (1) you make a ton of money on a low margin as long as you have a lot of volume. Just ask Wal Mart, Amazon, Big Oil, etc. (2) Not quite the same, because verifone is not a processor. Compare to companies like WorldPay and TSys. I'm not sure what proportion of square's revenue comes from processing vs services, but if I had to guess, I'd say most of the services are loss leaders for the processing. This is especially true with their rates so far above market. 2.75% is a fat chunk of change if they're processing 10 or 12 figures. (Working primarily with smaller clients, you get to charge that much, but it makes them less competitive with larger merchants who process more volume.)
- bpicolo 9y ago> 2.75% is a fat chunk of change Most of that goes straight to the credit card companies/bank, no?
- ng12 9y agoYes, and scale eats directly into that rate. The Big Box Stores are paying pennies per swipe.
- umanwizard 9y agoIf that's true for credit cards, then they're losing massive amounts of money on cash back and rewards
- lmm 9y agoThey make it back from the smaller merchants that are paying the full 2.75%. Local stores need Visa a lot more than Visa needs any one of them, but when you get to the Walmarts of this world the dynamic is rather different; if Walmart stopped taking Visa it would hurt Visa almost as much as it hurt Walmart.
- mitchellst 9y agoThe "issuing bank," which issues your cash back or rewards credit card, has its cut protected by the payment networks. Part of the "interchange," the wholesale cost of processing a payment, is reserved for paying out the issuing bank. The interchange rates are set for the payment processors by the card networks (Visa, Mastercard, Discover, Amex). Whether you spend $100 at the locally owned boutique or Costco, they get paid the same amount. The middleman— the payment processor— gets squeezed by merchants like Walmart and Costco, competing to shrink the margin for the promise of massive volume. But Chase, Captial One, etc. don't have their consumer credit card divisions affected by who processes the card. (Unless you're Citi's processing side with Costco, and only accept Visa. Then your competitors get zero volume from Costco on their mastercards, discovers, and amex cards)
- msrpotus 9y agoThey also do payroll and other services which probably bring in a decent amount of money.
- bigtones 9y agoSquare makes most of it's money from offering small businesses loans secured off the credit card transactions they process for their merchants. They have sold billions of dollars in loans to merchants in the past two years with interest rates very favorable to Square.
- abalone 9y agoSquare Capital. They've made over $1B in loans.[1] Also confirmed by a friend who works at Square. Internally they're pretty open about the business. [1] http://fortune.com/2016/11/07/square-capital-1-billion/ http://fortune.com/2016/11/07/square-capital-1-billion/