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August 28, 2017 • Issue 17:08:02

Fintechs: friends or foes?

Thad Peterson, Senior Analyst at Aite Group LLC, agreed
most banks, hamstrung by regulations and traditional
customer acquisition models, aren't interested in pursuing
small-dollar loans. But that isn't to suggest Square isn't
vying with financial institutions (FIs). A merchant
bundling Square's various offerings – POS and online
payments, and cash advances – has little need for FIs. "If
I were a merchant [getting all these services from Square]
all I'd need from a bank is a DDA," Peterson said. "Also,
the banks are not getting data" about customers and their
transactions, he added. "Square is getting all the data."

Ben Brown agrees. Brown, a Senior Consultant at First
Annapolis Consulting who specializes in financial
technology (fintech) partnerships and payment strategy,
related how successful small merchants grow and move
up-market over time and come to resemble the merchants
that acquirers and ISOs seek out. "Companies like Square
and Stripe [an online and mobile payments firm] compete
By Patti Murphy with acquirers," Brown said. "For a substantial minority
of mainstream acquirers, attrition in the small merchant
ack Dorsey, founder and Chief Executive Officer segment is being driven by these new technology players."
of Square Inc., has a message for banks and
their acquiring partners: we're not out to eat Some banking industry stalwarts are betting on Square
J your lunch; we'll settle for table scraps. "For the and other fintechs. Visa was an early backer of Square, and
last eight years, we've taken on a partnership mindset," according to public filings in 2016, it holds just under 10
Dorsey stated in an interview posted by Bloomberg on percent of the company's Class A common stock. (Visa has
Aug. 3, 2017. "We're not out to compete with banks. What made several investments in other high-profile payments
we're really good at is taking what they offer and making startups, including Stripe.)
it more accessible to people."

That's what the company has done regarding the POS
– making card-acceptance viable for millions of micro-
merchants, Dorsey said. And it's a course being charted Contributed articles inside by:
with Square Capital, which facilitates what effectively are
merchant cash advances. In the second quarter of 2017 Barry Davis ..............................................................................................22
the division made more than 49,000 loans totaling $318 Steven Feldshuh ...................................................................................26
million, Square reported. "We're not really competing
with financial institutions and banks and traditional Adam Hark ..............................................................................................28
lenders," Dorsey said. "Our average loan size is $6,000, so Aaron Nasseh .........................................................................................44
we're competing with people going to their friends and Jeff Fortney .............................................................................................46
family and asking for a loan."
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