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Square: where's the jam?

On Monday 23rd May Square made a number of company and product announcements:

  • The Numbers: 500,000 readers shipped, and a new peak Daily GPV* of $ 3 million, 
  • Square Register: the new iPad point of sale register application,
  • Square Card Case: a new consumer payment wallet and loyalty promotions application.

In suitable West Coast style they celebrated with Square shaped vegan donuts, and there's a great picture here via Twitpic.

As indicated in my post last week, the product announcements related to new Points of Payment (Square Register) and Personal Payments (Square Card Case). But neither of these was the BIG news Jack Dorsey (Twitter and Square Founder) had been suggesting in his preceding tweets.

My closer inspection of the numbers and announcements left me thinking, "Nice donuts, but where's the jam"!

Let me be perfectly clear here, I like Square. They are shaking up the card payments business in the US, and spooking suits at banks all over the Globe. They're exciting and I really like donuts too, logo shaped or not. However, being British and more than a little cynical, I look for the jam in both donuts and new businesses.

My assessment is that Square's announcements were a declaration of the business not yet taking off. 

Let me explain. Square, trumpeted a 50 % increase in their customer acquisition rates and are now shipping 150,000 new readers per month (compared to 100,000 in the previous month). Readers shipped to date jumped from the 350,000 mark (341,688 on April 29th) to 500,000 on 23rd May. Their Gross Payment Volume (GPV) also climbed from $ 2 million per day to $3 million per day over the same period.

Yet a closer look tells me that the Daily GPV (Gross Payment Value) per shipped reader remains flat at the $ 6 level, and revenue per customer per day remains steady at $ 0.18 . Income per customer per day is therefore estimated to be $ 0.09 , suggesting an average annual income per customer of only $ 33 before acquisition costs, overheads and risk.

Consequently, the challenges I highlighted last week still exist. It is unlikely that there has been any significant change in the proportion of readers shipped that are active on a daily basis. I say unlikely as the assumption here is that the "Average Transaction Value" and "Payments Per Active" have not changed either.

To be fair, only a month has passed and so a turnaround in these numbers would undoubtedly still be evolving. The challenge with Square's numbers announcements though is that they are great headlines, not real indicators.

Now a new challenge will be that with a scaling of customer acquisition, Square's burn rate will have increased too. So my question remains; Can Square significantly increase the "Daily Active Customers" number before their current funding runs out?

In reviewing the product announcements, Square Register is a great incremental innovation for small business. Providing a high quality register application supported by excellent backend Point Of Sale capabilities, on a web/cloud basis, neatly value adds. Yet it's doubtful that it will accelerate Square's path to profitability.

Square Card Case is full of confused messaging. I've already seen an article comparing this to NFC, i.e. a payment application in comparison to the communications hardware that it could actually one day use! A key skill of Square to date has been in making the complicated simple. Card Case makes their proposition complicated.

As to why Card Case was launched now, I can only speculate that using an identification photo with a wallet based payment is either a risk and/or cost reduction exercise. In that this allows for Card Present and/or the Aggregation processing of the transactions respectively.

If this is the "case" (pun intended!), then I can only deduce that there are some other challenges at Square. Why else would Square move to the consumer side of the market, when they were clearly differentiated from many other players with their focus on underserved merchants.

In summary, all I heard on Monday is that they are burning funds faster. Now I truly hope that Square find a model that works soon, because we all know that the card payments business needs a shake up.

I ask though, that the next time they make a "big" and "exciting" announcement, they think of us folks with a sceptical disposition and a really sweet tooth......... please include the jam!

 

*GPV: Gross Payment Value

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James Campbell

James Campbell

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Finch & Bamford

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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