Square probably has better gross margins than Braintree because they target a different market: small businesses. The value Square adds to that market is much

Square probably has better gross margins than Braintree because they target a different market: small businesses. The value Square adds to that market is much more substantial: free POS system, mobile wallet app, promotion in their marketplace, Jack Dorsey's autographed photo, etc. Braintree (and Stripe) target ecommerce startups. Their value-add is streamlined APIs and tailored customer service. That value-add is nice but relatively smaller and less scalable to boot. As soon as those sites get big they will negotiate for lower rates they can get from a commodity processor. No doubt the big customers in their portfolio already have and we just don't know it. Square's got a whole world of small business to expand into, a much larger market than ecommerce startups. And their margins are more sustainable; it takes an awful lot of growth for a merchant to justify switching out all their POS systems and other Square lock-in, just to shave a few basis points off their processing rate.