Unit 1 Homework Assignment FinTech Case Study
Square, Inc is an American financial services, merchant services aggregator, and mobile payment company based in San Francisco, California. The company markets software and hardware payments products and has expanded into small business services. The company was founded in 2009 by Jack Dorsey and Jim McKelvey and launched its first app and service in 2010. It has been traded as a public company on the New York Stock Exchange since November 2015 with the ticker symbol SQ.
Square, Inc. provides, together with its subsidiaries, payment and point-of-sale solutions in the United States and internationally. Square, Inc. revolutionized payments in 2009 with Square Reader, making it possible for anyone to accept card payments using a smartphone or tablet. Today, they build tools to empower businesses and individuals to participate in the economy. Sellers use Square to reach buyers online and in-person, manage their business, and access financing. And individuals use Cash App to spend, send, store, and invest money. Square has offices in the United States, Canada, Japan, Australia, Ireland, and the UK.
The company's commerce ecosystem includes point-of-sale software and hardware that offers sellers to payment and point-of-sale solutions. It provides hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts Europay, MasterCard, and Visa (EMV) chip cards and Near Field Communication payments; Square Stand, which enables an iPad to be used as a payment terminal or full point of sale solution; Square Register that combines its hardware, point-of-sale software, and payments technology; Square Terminal, a portable payments device that replaces keypad terminals, which accepts various payment types, such as tap, dip, and swipe, as well as prints receipts; and managed payments solutions. The company also offers various software products, including Square Point of Sale; Square Virtual Terminal; Square Appointments; Square for Retail; Square for Restaurants; Square Invoices, Square Online Store; Square Loyalty, Marketing, and Gift Cards; and Square Dashboard. In addition, it offers developer platform, which includes application programming interfaces and software development kits. Further, it provides managed payments, instant transfer, Square Card, Square Capital, and payroll. Additionally, it provides Cash App, which enables to send, spend, and store money; and Weebly that offers customers website hosting and domain name registration solutions.
When Square was founded in 2009, it started with a product that gave small businesses the capability to accept credit card payments. From there, the company expanded to create an ecosystem of financial technology products that make it possible to manage a business using exclusively Square products. On March 18, 2020, the Federal Deposit Insurance Corporation (FDIC) granted Square conditional approval to open a bank. The bank, which is named Square Financial Services, will open in 2021. It will offer small business loans and "deposit products. The bank will be headquartered in Salt Lake City, Utah.
In 2009, superstar entrepreneurs Jack Dorsey and Jim McKelvey created Square, Inc., fulfilling their dream of creating technology capable of aggregating merchant services and mobile payments into a single, easy-to-use service. Less than a decade later, Square was downloaded over 33.5 million times by small businesses that use it to accept credit card payments, track sales and inventory, and obtain financing.
The original inspiration for Square occurred to Jack Dorsey in 2009 when Jim McKelvey (a friend of Dorsey) was unable to complete a $2,000 sale of his glass faucets and fittings because he could not accept credit cards. Co-founders Dorsey—who also co-founded Twitter—and McKelvey began developing the company out of a small office in St. Louis. Their idea was simple. Square would be a simple way for small businesses to process credit card payments using a small dongle-style card reader that could be connected to a mobile device, effectively making the device a point-of-sale system. However, helping small businesses to accept card payments was only part of McKelvey and Dorsey’s solution. Dorsey in particular wanted to reimagine the entire concept of payments as a form of communication between merchant and customer. This meant designing an experience around payments, not just a product to facilitate the payments themselves. Square wanted to make processing card payments easy for small businesses and solopreneurs—but it also wanted to change how people thought about the entirety of the transaction experience. The name "Square" derives from the company's square-shaped card readers.
Square received angel investments from Marissa Mayer, Kevin Rose, Biz Stone, Dennis Crowley, Shawn Fanning, MC Hammer, and Esther Dyson. Since then, it has raised several additional rounds of funding:
Series A funding from Khosla Ventures Series B funding from Sequoia Capital Series C funding from Kleiner Perkins Series D funding from Citi Ventures, Rizvi Traverse Management, and Starbucks Series E funding from Goldman Sachs, Rizvi Traverse Management, and GIC Private Limited
The company's valuation in October 2014 was $6 billion. On November 19, 2015, Square had its IPO on the New York Stock Exchange with an initial valuation of $2.9 billion, down by more than half from its last valuation in October 2014 at $6 billion. Although the firm has yet to make a profit and has lost $420 million since 2012, it has decreased its losses from 44% of revenues to 16% in the six months leading up to its IPO. For the fiscal year 2018, Square reported losses of US$38 million, with an annual revenue of US$3.299 billion, an increase of 49.0% over the previous fiscal cycle. Square's shares traded at over $75 per share, and its market capitalization was valued at US$32 billion in November 2018. As of July 2020, the shares traded at over $130 giving it a market cap of more than $55bn, larger than Uber and many of the other highly successful companies that emerged from the 2011-2013 cohort of highly successful Silicon Valley companies (e.g. Airbnb).
Before Square, any number of companies could have easily developed a similar product—but nobody did. Incredibly, not one major financial institution or commercial bank saw small business’ inability to cost-effectively accept credit card payments as the vast potential market it was. McKelvey and Dorsey could have focused on small businesses as their initial target market, such as coffee shops, florists, and bakeries. Instead, they chose to focus on individual entrepreneurs like McKelvey. This wasn’t a deliberately exclusionary measure. McKelvey and Dorsey smartly identified solopreneurs who lacked any means of processing card payments as the potential Square users with the greatest need for a solution. Square’s users were artisans like McKelvey, but McKelvey and Dorsey wanted to help people launch businesses, not just help proprietors who had already established their businesses.
Who is the company's intended customer? Is there any information about the market size of this set of customers? What solution does this company offer that their competitors do not or cannot offer? (What is the unfair advantage they utilize?)
The Square story starts with addressing a widespread need with an effective solution that completely reimagines small business payments. Before Square, it was illegal for non-registered merchants to accept credit card payments. Registering was a costly and difficult process that most small business owners couldn’t afford. These business owners struggled with the reality that while most people carried plastic instead of cash, the costs and complexity of credit card processing made it impractical to accept credit cards. Square not only solved a lasting problem for millions of small businesses worldwide but did so in a way that forced the mainstream financial sector to reevaluate what consumers want from financial products in today’s business environment. The company was smart to emphasize the importance of design and how this affected the overall experience but was careful to avoid developing a reputation for style over substance. Square work to democratize commerce—leveling the playing field for sellers of all sizes. Focus on technology and design allows square to create products and services that are accessible, intuitive, and easy-to-use. They set attractive and transparent pricing, and accept approximately 95% of sellers who seek to process payments with Square. The company provide a free software app with affordable (often free) hardware to turn mobile devices into powerful POS solutions in minutes. Insights into our sellers’ businesses have allowed us to develop services that are applicable to businesses of all types and sizes, from Square Analytics to digital receipts. They also continue to add advanced software features that tailor POS solution to specific types of sellers, such as open tickets for bars and restaurants and inventory management for retailers.
Which technologies are they currently using, and how are they implementing them? (This may take a little bit of sleuthing–– you may want to search the company’s engineering blog or use sites like Stackshare to find this information.)
Square uses 64 technology products and services including HTML5, Google Analytics, and Google Fonts, according to G2 Stack. Square is actively using 25 technologies for its website, according to BuiltWith. These include Viewport Meta, Content Delivery Network, and Amazon. The intellectual property of Square includes 768 registered patents primarily in the 'Computing; Calculating' category, according to IPqwery.Additionally, Square has registered 49 trademarks with the most popular class being 'Scientific and electric apparatus and instruments', according to IPqwery. Data Store: PostgreSQL, MySQL, Hadoop, Redis Languages: Ruby, Java Framework: Rails, Ember.js Cloud: On-Prem datacenter
“We're transitioning the front end right now. The logged out portions of the site will still mostly be HTML enhanced with jQuery, but the logged in portions are being rewritten to use Ember.js. The backend services are written in Ruby and Java. We're moving all of our services to the JVM. We have one service (the largest and oldest) running on REE 1.8.7, but all of the newer ones are either Rails 3 apps running on JRuby or Java web services. Deploying and running on JRuby has been a surprisingly large hassle, but we're writing a lot of infrastructure to make it much easier. On the Java side, we have developed our own service framework that has built in logging (Log4J), metrics (codahale/metrics), RPC (Protobuf+TCP+SSL), containerization, etc built on top of well-known Open Source tools. We use Postgres, MySQL, HDFS and log files to store data, along with Redis for transient information that we're ok with losing. We're exploring some more exotic data stores, particularly as we start looking into running multiple data centers. We host our own servers for security reasons. We're currently doing a lot of work around making it easier to spin up new servers and services, distribute configurations and keep everything secure. Of course, we also have our iOS and Android apps. I haven't worked directly on them, maybe one of the other engineers can talk more about them.” - Zach Brock, Engineering Manager @ Square
Square’s revenue model is based on card transactions. Just as any other company in the market for card payments in retail transactions, Square is able to generate revenues every time a square app or card reading terminal is used to process a transaction. These revenues come from fees that are percentages of the total value of a transaction. Square has two different pricing schemes: there are no flat fees, the app and card reading terminals are free and two different fixed fees are charged: a 2.75% fee for every card swipe that automatically detects the information from the card, or a 3.5% fee plus a fixed 15 cents for every manual transaction in which the information for the card is entered manually into the square app or terminal to process the payment. This business model is the common practice in the industry as card payment processors are focused on the volume of transactions that consumers process daily. Square’s business model is very similar to its competitors in the industry. It is completely based on the amount of money transacted in their terminals and applications. The main focus of Square is to bring the opportunity to small businesses of accepting credit and debit card as a payment option. This benefit both Square by processing the payments and the merchants by being able to increase their number of transactions.
In the last 10 years, we see drastic changes in consumer behavior. Most notably, consumers today prefer convenience and ease of shopping, instead of first-hand shopping experience.
On average, an adult spends close to 5 hours a day on their devices. Among which, 50% of the time is spent in messaging, social networking, and entertainment applications. When companies started to realize the importance of this data, more and more online and digital campaigns were run. Today, this form of marketing has completely replaced the traditional method of marketing to consumers. Companies are now hinged directly to places where consumers are spending most of their time online. People are now making purchasing decisions on their smartphone devices without even entering a brick and mortar store. This has been one of the biggest drivers of the industry in the last decade. Furthermore, the smartphone user population is increasing at a rapid pace, thereby heightening the imperative nature of m-commerce. One of the biggest factors that limited the potential growth of the ecommerce industry was trust. Back in 2010, consumers preferred visiting retail stores instead of making online purchases due to a lack of trust on ecommerce platforms. Back then, the internet was still conceived to be a luxury and was marred with security and safety concerns, especially related to online payments. However, the impact of digitization has brought forward seamless and advanced payment services. Among which, the introduction of digital wallets has been one of the biggest positive steps for the industry. Today, digital wallets are being widely adopted and used across different online stores. Digital wallet payments are one of the best ways to reduce abandoned cart sales. According a report by Zion Market research, the mobile wallets market will be USD 3,142.17 billion by 2022. It’s hard to remember this now, but there was no iPad before 2010. The tablet had been around for almost a decade, but Apple showed consumers why this device was essential. Tablet computers proliferated and got more powerful in the 2010s. This has been facilitated by new developments in secure online payment technology. PayPal has been around since 1998. Google introduced its mobile payment system, now called Google Pay, in 2011. In 2014, Apple Pay turned iPhones into mobile wallets. Venmo (launched in 2009) and Zelle (2017) gave people more ways to transfer money through mobile apps. Bitcoin surged in the 2010s, offering a new way to pay for online purchases.
PayPal may be the best-known of these services, but it’s certainly not the only one. Google reorganized Android Pay and Google Wallet into a single service called Google Pay. Then there’s Venmo, which has skyrocketed in popularity.
As previously mentioned, PayPal is perhaps the best known of these services — though that has been changing in recent years. PayPal has long been the go-to for online shopping, and the fact that it can be used to transfer money between friends is simply a bonus. PayPal’s interface is extremely easy to use, largely thanks to a major redesign. Simply open up your PayPal account, press the “send money” button, and follow the instructions — it only takes a few seconds to send money. The PayPal.me initiative has made sending money even easier. If you have your friend’s PayPal.me link, simply follow the link and enter how much you want to pay them. What PayPal has going against it, however, isn’t related to its ease of use. Out of the five services, PayPal is the most expensive, if you don’t want to connect the service to your bank account. Now, we would highly recommend connecting it to your bank account anyway, as it makes things a lot easier if you happen to lose your debit or credit card or when you get a new one. However, if you choose not to, PayPal will be one of the most expensive services for you. Not only does it charge a 2.9% fee for money sent from a debit or credit card, but it also charges an extra 30 cents on top of that. One advantage is that PayPal allows the largest transactions of the bunch, tied with Apple Pay Cash and Google Pay. Using PayPal, you can transfer up to a hefty $10,000. Most people won’t need that — but it’s nice to have in case you do.
Google Pay is one of the cheapest services on the list — there are no fees to use debit cards or make bank transfers, though you will pay a 2.9% fee for credit cards. It can transfer as much money as PayPal, with the maximum amount per transaction set at $10,000. What really sets Google Pay apart from the rest, however, is its integration with other Google services. In Gmail, for instance, you can request money simply by pressing the little dollar sign in the toolbar under a message. You can even send money through Android Messages, the default texting service on most Android phones, and it will show up in Google Pay. If you have a Google Home smart speaker, you can ask it to send over money to a friend through Google Pay. If you choose to use the actual Google Pay app instead, sending money is as simple as pressing on the option and entering your recipient’s email address or phone number. You can also use your fingerprint sensor or Face ID to unlock the app. Transferring money into your bank account could take up to three days, but it’s instant when you’re sending it to a debit card.
Venmo has grown a lot more popular over the past few years, becoming the preferred way for many people to transfer cash to their friends. In fact, Venmo has become a verb — “Venmo me!” After creating your account, you’ll be asked to add people to your friends list, which makes it easier to transfer money the next time you need to do so. There are a few things to keep in mind when using Venmo, however. For example, the team behind it has tried to make the service highly social, which may frustrate some. When you send money, you’ll have the option to make the transaction public, and while you most likely don’t want or need to do this, you’ll have to be careful to not accidentally select the wrong option. Like other services, when someone sends you money, it sits in your Venmo account — it can be sent to others or transferred to your bank account by “checking out.” It’s free to use Venmo with a debit card. It will still cost you 2.9% to use a credit card, but if you’re not too fond of linking a service to your bank account, it might be nice for you to not have to pay a fee for each transaction. Not only that, but Venmo says that money will be transferred to your bank account within one business day, which is pretty quick. Venmo recently added an option to instantly send money to your debit card for 25 cents; there’s still a free option, but it’s not as fast. Venmo is obviously meant to be used for everyday transactions, and as such, it sets a weekly limit of just under $5,000. It’s still a lot of money, sure, but you won’t be using Venmo to send a huge amount of cash like Apple Pay Cash or PayPal.
Unlike the other services on this list, you may already have Apple Pay Cash, which rolled out as part of iOS 11.2, if you have an iPhone. That means you don’t need to download another app in order to transfer money to or from fellow iPhone owners. One of the best things about Apple Pay Cash is that it’s well-integrated with iOS, and as long as you have set up Apple Pay with a credit or debit card, you can quickly and easily send money through the Messages app. To send or receive money, open up a thread in the Messages app, hit the Apple Pay icon on the keyboard, choose the amount, and hit the “Request” or “Pay” button. Fees, transfer times, and limits are pretty good with Apple Pay Cash. You’ll be able to transfer up to $10,000, and will incur a 3% fee when using a credit card. Once you have money in your account, you can transfer it to your actual bank account in one to three business days. There are a few downsides to Apple Pay Cash, the main one being that it’s only compatible with iOS — so you won’t be able to use it with people on Android — and there’s no desktop interface.
Square competes in the market of card payment processing for retail transaction. Its main focus is small businesses but it provides its service to anyone who needs it. The volume of this market grew from $4,441 billion in 2014 to $5,142 billion in 2017 as shown in the Nilson Report. Square is dependent on the growth of this market to increase its transaction amounts followed by an increase in the revenues from these transactions.
Square’s value is based on factors that are mainly dependent on the market it works in. They decided to get into a very competitive market and bring a fresh option to small businesses that couldn’t afford or understand card payment processing. Even with that idea, the business model is very dependent on the market and its growth. Over the years, after Square started to operate, no major change has happened in this market. Square has been able to take a 1% market share that appears to have a limit of 15% if the market was distributed equally between Square and its competitors.
What are some of the core metrics that companies in this domain use to measure success? How is your company performing, based on these metrics?
Comparing the results to its competitors, Square Inc reported Total Revenue increase in the 3 quarter 2020 by 139.55 % year on year.
The sales growth was above Square Inc 's competitors average revenue growth of 12.87 %, recorded in the same quarter.
With net margin of 1.2 % company reported lower profitability than its competitors.
Square Inc Net Income in the 3 quarter 2020 grew year on year by 24.21 %, slower than its competitors income growth of 35.57 %
Due to outstanding performance in overall company, revenue grew by 139.55 % Square Inc improved its market share, to approximate 58.59 % *Market share is not actual measurement, only performance comparison of companies which report and operate within the same segment.
If you were to advise the company, what products or services would you suggest they offer? (This could be something that a competitor offers, or use your imagination!)
With the advances in smartphone technology, many of us are now familiar with biometric authentication. We unlock our devices with our fingerprint, iris scan, facial recognition or voice without so much as a second thought – and this level of familiarity is swiftly expanding into the world of payment technology. According to research, mobile biometrics will authenticate $2 trillion worth of transactions (both in-store and remote) annually by 2023. Biometrics can shape the future of commerce – for example, Amazon is already making it happen (Amazon Go). In the future, we will also see other forms of biometrics emerge. In addition to fingerprint, voice, facial recognition and iris scanning, there are companies working on biometrics triggered embeddables, injectables or ingestibles. Examples range far and wide, ranging from a biometric wearable tattoo with a thin silicon chip that can be inserted into the skin, to the idea of injectable chips mooted by PayPal.
The main advantage of using biometrics is that they allow you to prove your identity using characteristics that make you unique. Since the data is “something you are,” it’s much less likely to be forgotten, stolen or forged, in contrast to using something you possess (like a document or card) or something you know (like a password or secret phrase). Biometrics provide a lower level of friction in payments than passwords. Using biometric authentication for payments is quick and convenient. Users don’t have to remember passwords and PINs. As financial services become more digital, banks and fintechs are adopting stricter identification protocols to combat fraud, increase transaction security, and enhance customer experience. Banking fraud is rampant: in 2018, about 60% of banks saw the total value and volume of customer fraud increase from 2017, according to a survey conducted by KPMG. The main types of growing fraud included online fraud, identity theft, and data theft. As a result, biometric tech has become a strategic part of financial service security platforms, whether it be for credit cards, ATMs, or online portals. The trend is also driven by customer preference — more than 90% of consumers would rather use biometric methods than passwords, according to Mastercard.
Like most security solutions, biometrics are appropriate solutions for some security problems and inappropriate answers to others. In addition, biometric authentication produces technical, business, social, and legal problems. Companies using biometrics must build additional security into their systems to protect the authorization databases and understand that such systems can provide strong authentication, but not infallibility. Biometrics suffers from the fact that the matching algorithms cannot be compared to the hashes of passwords, as we said. This means that two biometric measures cannot be compared with each other without them, at some point, being "in plaintext" in the memory of the device doing the matching. Therefore, biometric checks must be carried out on a trusted secure device, which means the alternatives are to have a centralized and supervised server, a trusted biometric device, or a personal security component.
When it comes to the future of biometric tech, it is likely we will see biometrics moving from the now-commonplace mobile uses towards website and desktop applications. It is possible that biometrics will replace the two-factor identification method that so many security-sensitive companies opt for in their online sites, making our computer-based login a much smoother and faster experience. The next stage could be that we will no longer need to hold wallets stuffed with IDs and cards, as ATMs, payment systems, and IoT devices will be able to identify us on biometrics alone to process a transaction
However, privacy laws in Illinois, Texas, Washington, and California (as of January 2020) and New York state's SHIELD ( as of March 2020) will pose a serious challenge to these efforts. Civil liberties groups want an embargo on the technology and a precise democratic debate about the place that facial biometrics should take in our lives.
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