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Square has been operating in the red since its inception,
Insider’sreport reporting $109 million in transaction and loan losses for
the first quarter of 2020 alone.
on payments Staunching the flow of red ink?

Despite the red ink, Square has been a darling among
investors since going public in 2015; it had a market
capitalization of $45.36 billion as of June 29. Even before it
Now is a good time went public, Square was able to secure investments from
the likes of Starbucks—and Visa, which today holds about
to compete with a 2 percent stake in the company.

Businesses using Square, meanwhile, are beginning to
Square sour on the company. For starters, they're spending more
to process payments. In 2019, Square changed its pricing
structure in a way that proved especially costly for small-

By Patti Murphy dollar purchases. Based upon at least one analysis I read,
for example, a business processing a $5 coffee purchase
he news that Square is withholding up to 30 through Square now pays 23 cents, up from 14 cents a year
percent of business customers' card receivables ago.
for as long as 120 days should be a wakeup
T call for any ISO or merchant level salesperson Now, the company is holding back significant shares of
(MLS) wanting to compete with Jack Dorsey's payments individual merchant receivables in the form of rolling
business. reserves as a hedge against chargebacks. Square, in a
blog post, said these reserves are assessed only on "risky
Dorsey made a big splash when he rolled out Square in sellers," and that it holds reserves on "fewer than 0.3
2010. The idea initially was to offer a simple, low-cost way percent" of sellers.
for artisans and street vendors to accept credit and debit
cards using small card readers that could transmit data But that may not be the true extent of things. A web
using the headphone jacks on smartphones. But it has had designer using the platform told the New York Times that
many other takers. Square has been holding 30 percent on each transaction
since early May, totaling $4,000 as of late June, despite his
Square makes it incredibly easy to apply to accept credit business having no history of chargebacks.
and debit cards, with short online applications and free
card-reading dongles. And because Square is considered The timing couldn't be worse, of course, as many small
a Master Merchant under card-brand rules, it, rather merchants struggle to stay afloat amid coronavirus-
than individual merchants, assumes responsibility related business disruptions. As of June 29, nearly 2,000
for PCI-related hassles, like required self-assessment small businesses had signed an online petition calling on
questionnaires. Plus, its initial pricing—a flat rate of 2.75 Square to stop. "Many small business owners are fighting
percent for swiped, dipped or tapped transactions, and 3.5 for survival and cannot afford for this to happen," the
percent plus 15-cents for key-in transactions—was simple petition reads in part.
and undercut the rates most ISOs and MLSs could offer
these businesses. I don't see Square changing course. But I do see an opening
for ISOs and MLSs to call on these merchants and offer
The company's offerings quickly expanded to better better deals with simplified, streamlined application and
compete with legacy competitors. It developed Square setup processes that are now available through many
Stand (which converts an iPad into a POS system), Square upstream partners. As Ryan Malloy, senior vice president
Market (a tool to create online storefronts), an order for partner sales at North American Bancard, related
delivery app, and Square Capital (a merchant cash advance during a recent Merchant Sales Podcast interview: "We
service). have reps who are calling on merchants, and leaving with
them activated."
Square's pricing formula has left payments experts
scratching their heads, wondering how the company Clearly, now is a good time to start selling against Square.
could make money by charging clients rates that barely
cover interchange. (The standard interchange rate on
transactions initiated with plain vanilla Visa consumer Patti Murphy is senior editor at The Green Sheet and self-described
credit cards, for example, is 2.70 percent plus 10-cents. payments maven of the fourth estate. Follow her on Twitter @GS_
Interchange on the same transaction using a Mastercard PayMaven.
credit card is 2.95 percent plus 10-cents). Well, it hasn't:
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