Square, Inc. (Square), together with its subsidiaries, creates tools that empower businesses, sellers and individuals to participate in the economy. The company enables sellers to accept card payments and also provides reporting and analytics, and next-day settlement. Its point-of-sale software and other business services help sellers manage inventory, locations, and employees; access financing; engage buyers; build a website or online store; and grow sales.
The company operates through two segments, Seller and Cash App, reflecting its two ecosystems.
This segment offers a cohesive commerce ecosystem that helps the company’s sellers start, run, and grow their businesses. The company combines software, hardware, and financial services to create products and services. Its ability to add new sellers efficiently, help them grow their business, and cross-sell products and services has historically led to continued and sustained long-term growth. In the year ended December 31, 2020, the company processed $103.7 billion of Seller Gross Payment Volume (GPV), which was generated by more than 2 billion card payments from 405 million payment cards. At the end of 2020, the company’s Square point of sale ecosystem had over 210 million buyer profiles and approximately 295 million items were listed on Square by sellers.
Cash App Ecosystem
This segment provides an ecosystem of financial products and services to help individuals manage their money. While Cash App started with the single ability to send and receive money, it provides an ecosystem of financial services that allows individuals to store, send, receive, spend, and invest their money.
Response to COVID-19
In 2020, the company made certain focused investments in each of its Seller and Cash App ecosystems to help its customers adapt to COVID-19. For its sellers, the company provided resources with information and advice. The company eliminated fees for its software products in March and April, and introduced options for sellers to pause subscriptions temporarily based on their circumstances. The company prioritized omnichannel product launches to help sellers transition to serving more of their customers online and through contactless commerce, including curbside pickup and delivery for Square Online and a website for customers to purchase eGift Cards from sellers. The company also temporarily offered its sellers free marketing campaigns to update their buyers on changes and to promote their businesses. As a participant in the Paycheck Protection Program (PPP), the company distributed loans to Square sellers. As of December 31, 2020, Square Capital had facilitated approximately $857 million of PPP loans, excluding cancelled loans, providing access to a financial lifeline to over 80,000 small businesses.
For its Cash App customers, the company published educational materials to help them understand the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) stimulus programs. The company expanded direct deposit access to many of its Cash App customers, allowing customers to direct deposit government funds into their Cash App accounts. Customers could spend their funds on Cash Card and the company adapted certain Boost rewards to pandemic relevant merchants and categories (grocery stores) to benefit its customers.
Products and Services
The company’s seller ecosystem consists of over 30 distinct software, hardware, and financial services products. It monetizes these products through a combination of transaction, subscription, and service fees.
The company offers a growing suite of cloud-based software solutions to help sellers more effectively operate and manage their businesses. Its software is designed to be self-serve and intuitive to make initial setup and new employee training. The company’s products are integrated to create a seamless experience and enable a holistic view of sales, customers, employees, and locations. Sellers get frequent software updates and upgrades automatically. Software includes the company’s Online, Point of Sale, Developer Platform, Customer Relationship Management, and Team Management products.
The company’s point of sale products helps sellers make sales, send digital receipts, and collect instant customer feedback to improve their service. Each product takes payments, tracks sales, inventory, customers’ purchase histories, and enables employees to clock in and clock out in the app. All point of sale products has a free software tier without a subscription fee, which the company monetizes only through payments transaction fees. Among its point of sales products, Square Appointments, Square for Retail, and Square for Restaurants also have premium tiers with additional functionality, which it monetizes through subscription fees in addition to transaction fees on payments.
Square Point of Sale is a general purpose point-of-sale software solution. It is available for both iOS and Android and is pre-installed on Square Register and Square Terminal hardware devices.
Square Appointments is an integrated solution that includes support for booking, retail sales, invoicing, and payments. It can be used on iOS or Android, as well as via a web browser on other operating systems. Appointments includes a free online booking site so buyers can schedule appointments and select their preferred time, service, and staff member. It is also integrated with Square Assistant which is an artificial intelligence enabled automated messaging tool that responds to buyers efficiently and professionally, saving sellers' time and helping prevent no-shows.
Square for Retail is tailored for sellers in the retail industry and includes barcode scanning, advanced inventory management, support for tens of thousands of items, cost of goods sold reporting, purchase orders, and vendor management.
Square for Restaurants is enhanced and tailored for the food and beverage industry and includes table, order and course management. It also provides back of the house functionality, including a kitchen display system and revenue and cost reporting. These premium features help managers and owners make informed decisions and run a more efficient business.
The company’s online products make it easy to sell online and via social media. When also used in conjunction with the company’s point of sale products, sellers can offer omnichannel experiences for their customers, such as buy online, pickup in store (or curbside) and buy online, return in store. All online products have a free tier without a subscription fee, which it monetizes only through transaction fees on payments. Square Online also has premium tiers with additional functionality that is monetized via software fees in addition to transaction fees on payments.
Square Online helps sellers across a range of verticals reach customers in more ways. It makes it easy to build a website and online store, as well as sell on Instagram and Facebook. The online store is mobile responsive, delivering an app-like ordering experience on a buyer’s phone. With integrated support for QR code ordering, sellers can also streamline their in-store operations by posting the QR code and having their buyers order from their own phones. Fulfillment options include pickup, delivery managed by the company’s sellers, and partner delivery platforms. Orders, items, inventory, and customer data stay in sync when selling both online and in-person.
Square Online Checkout makes it easy to sell online without a website by allowing sellers to create a checkout link with only a name and price for their good or service.
Square Invoices is a customizable digital invoicing solution with integrated and secure online payment acceptance. This eliminates the need to print and mail statements to customers and wait for checks to arrive. Sellers use Square Invoices for upcoming, recurring, or previously-delivered goods and services, such as catering orders, contractor services, lessons, and retail orders. Square Invoices also lets sellers send estimates and collect partial payments for goods and services.
Square Virtual Terminal allows sellers to use a computer as a card terminal. Sellers can take a payment, set up recurring billing, record sales, and send digital receipts for payments, including those made by check and bank transfer.
The company’s business and customer relationship management products give sellers digital tools to streamline their operations. These tools seamlessly integrate with other Square products eliminating the latent, time-consuming, and error prone processes typically used to copy and sync data between disparate systems. It monetizes these products via software fees with the exception of Square Contracts, Feedback, and Dashboard which it does not directly monetize.
Square Team Management makes it easy to schedule staff, view team performance and sales analytics in real time, and pay employees in minutes when used together with Square Payroll. It also enables limiting access to Square software features per employee or role. The Square Team App enables team members to clock in and out, view and adjust their schedules, see timecards, hours worked, and estimated pay from their mobile phone. Team members paid via Square Payroll can also view their pay stubs in the Square Team App.
Square Contracts helps sellers protect themselves by creating custom and template-based digital contracts with e-signature support for uses, such as service agreements and liability waivers. These contracts can be used on their own or added to Square Invoices or Square Appointments.
Square Loyalty, Marketing, Gift Cards, and Feedback help sellers engage with their buyers in-store and online to grow their business. By linking customer data and feedback with point-of-sale and online commerce data, the company can offer its sellers integrated omnichannel loyalty, marketing and feedback. Its closed-loop system allows sellers to assess performance and return on investment.
Square Dashboard provides sellers with real-time data and insights about orders, items, inventory, customers, employees, payments, marketing, and loyalty performance. It can be used via the web or the Dashboard iOS app. This reporting enables sellers to stay informed and make timely decisions about their business from anywhere.
Finally, the company offers a developer platform including APIs (application programming interfaces) and SDKs (software development kits) that enable external developers to integrate with the Square ecosystem.
Payment APIs support in-person, online, and mobile payments. Square Reader SDK enables developers to seamlessly integrate Square hardware with a seller’s custom point of sale, allowing them to build unique checkout experiences, such as self-ordering kiosks powered by Square’s managed payments service. With its online payments APIs, developers can integrate Square payments into a seller’s e-commerce website or online store. The company’s In-App Payments SDK enables developers to build consumer mobile apps that use Square to process payments. These products are primarily monetized through transaction fees on payment volumes.
Commerce APIs include more than 30 commerce APIs, through which developers can create and manage orders, subscriptions, product catalogs, inventory, customer profiles, employees, loyalty programs, gift cards and more in order to build applications that enrich and integrate with Square's ecosystem of products. In addition, these APIs enable developers to build integrations with their existing business systems, such as accounting, CRM (customer relationship management), employee management, and ERP (enterprise resource planning) software.
The company’s custom-design hardware can process all major card payment forms, including magnetic stripe, EMV chip, and NFC (contactless). Sellers are able to accept cards issued by Visa, MasterCard, American Express, Discover, JCB, Interac Flash (in Canada), e-Money (in Japan), and eftpos (in Australia). Square hardware can be integrated with additional accessories, such as cash drawers, receipt printers, and barcode scanners to provide sellers with a comprehensive point-of-sale solution. Its hardware portfolio includes the following:
Magstripe reader enables swiped transactions of magnetic stripe cards by connecting with an iOS or Android smartphone or tablet via the headphone jack or lightning connector.
Contactless and chip reader accepts EMV chip cards and NFC payments, enabling acceptance via Apple Pay, Google Pay, and other mobile wallets.
Square Stand enables an iPad to be used as a payment terminal or full point of sale solution. It features an integrated magnetic stripe reader, provides power to a connected iPad, and can connect to the contactless and chip reader wirelessly or via USB.
Square Register is an all-in-one offering that combines the company’s hardware, point-of-sale software, and payments technology. The dedicated hardware consists of two screens: a seller display and a customer display with a built-in card reader that accepts tap, dip, and swipe payments.
Square Terminal is a portable, all-in-one payments device and receipt printer to replace traditional keypad terminals. It accepts tap, dip, and swipe payments and has a battery that lasts all day, enabling payments anywhere in the store.
Square acts as both the merchant of record for the transaction, as well as the payment service provider (PSP). As the merchant of record, Square is the party responsible for settling funds with the seller and helps manage transaction risk loss on behalf of the merchant. The company’s position as the merchant of record helps it better serve its sellers. For example, as the merchant of record, the company can onboard new sellers through its website, leveraging its risk assessment models, and the company has insights into transaction-level data that it uses to inform its sellers and launch new products. Square has negotiated terms and entered into contractual arrangements directly with the other service providers of transaction processing services, including the acquiring processors and card networks, and indirectly with the issuing banks. These contracts include negotiated terms, such as more favorable pricing, that are generally not available to sellers if they were to contract directly with these sub-service providers.
The company offers a growing number of accessible financial services that make it easier for sellers to manage cash flow and get faster access to funds. Financial Services includes its Managed Payments, Business Banking, and Payroll products.
Managed Payments includes next-day settlements, payment dispute management, data security, and PCI compliance. Sellers can onboard in minutes and, once onboarded, accept payments in person via swipe, dip, or tap of a card or online via a stored card on file or payment entry form. Sellers pay a transparent transaction fee for the company’s managed payment offering.
Risk Manager gives sellers insight into online payment fraud patterns and enables them to set custom rules and alerts to manage risk. Machine learning algorithms automatically identify fraud patterns and adapt to fit a seller's operations.
Instant Transfer enables sellers to receive funds from their payments instantly or later that same day. Instant Transfer is an important tool for sellers that need faster access to their funds in order to better manage their cash flow or working capital.
Square Card is a free business prepaid debit card that provides a way for sellers to spend and manage their funds, enabling sellers to spend their proceeds as soon as they make a sale. When a seller takes a payment, the proceeds immediately go into their Square stored balance and can be spent using their card or withdrawn from an ATM. Square earns interchange fees when sellers make purchases with Square Card.
Square Capital facilitates loans to qualified Square sellers through a partnership with an industrial bank. Square Capital eliminates the lengthy (and often unsuccessful) loan application process. The company approves sellers for these loans while facilitating prudent risk management by using its unique data set of a seller’s Square transactions to help facilitate loan underwriting and collections. The terms are straightforward for sellers, and once approved, they get their funds quickly, often the next business day. Generally, for loans to Square sellers, loan repayment occurs automatically through a fixed percentage of every card transaction a seller takes. The company funds a majority of these loans from arrangements with institutional third-party investors who purchase these loans on a forward-flow basis. This funding allows the company to mitigate its balance sheet and liquidity risk.
Square Payroll allows sellers to hire and onboard employees, pay wages and associated employee taxes, and offer employee benefits (e.g. 401(k) accounts). The Square ecosystem drives competitive differentiation for its Payroll product with the ability to use Payroll in conjunction with its point of sale products, Team Management, and Cash App.
In 2021, the company intend to open an industrial loan corporation (ILC), Square Financial Services (SFS), which will operate as a wholly owned subsidiary of Square. The company expects SFS will engage in certain lending activities related to Square Capital. The opening of Square Financial Services remains subject to regulatory approval.
Cash App Ecosystem
With Cash App, the company is building an ecosystem of financial products and services that helps individuals manage their money by making it more relatable, instantly available, and universally accessible. Cash App has a diverse set of customers across demographics and domestic regions. Cash App primarily serves customers in the United States with its breadth of products, and also provides certain services to customers in Europe, primarily the United Kingdom and Spain.
Storing, Sending, and Receiving Funds
Customers can use Cash App to store funds by receiving money from another Cash App customer through the app’s core peer-to-peer transfer service or by transferring money from a bank account. The company has enhanced the efficiency of peer-to-peer transfers by streamlining the onboarding process for new Cash App customers. Many Cash App accounts also have a routing number and a unique account number, which allows customers to deposit funds directly from their paychecks. These funds can then be sent to another customer through the app, spent anywhere that accepts cards or withdrawn from an ATM using the Cash Card, invested in stocks or ETFs, used to buy bitcoin, or transferred to a bank account (either instantly for a fee or for free in 1-3 days). Cash App has made it easier for people to manage a business by enabling payments to their Cashtag, allowing higher weekly limits, and providing relevant tax reporting forms. As of December 31, 2020, Cash App had stored balances of approximately $2.0 billion from its customers.
The company is expanding Cash App’s ecosystem by reaching more customers globally. In 2020, the company launched cross-border payments between the United States and the United Kingdom, allowing customers to instantly transfer funds between these countries using real-time exchange rates with no fees.
Cash Card is a debit card that is linked directly to a customer’s Cash App balance. Customers can order a Cash Card for free and use their Cash Card anywhere that accepts cards to make purchases, drawing down from the funds stored in their Cash App balance. Square earns interchange fees when individuals make purchases with Cash Card. Customers can select new or promotional Cash Card designs for a fee.
Cash Card also offers customers discounts at certain businesses through the Cash Boost program. Cash Boost is a free and instant rewards program for Cash App customers, which offers a discount at a specific business (e.g. 10% off a purchase on DoorDash, Inc.) or a discount at certain business types (e.g. grocery stores). Customers can select the Cash Boost they want to apply to their Cash Card through the Cash App, and the discount is instantly applied to their Cash App balance when customers make eligible transactions. Some Cash Boosts are selected and funded by Square, while others will be funded by the company’s partners.
Customers can also use Cash App to invest their funds in the U.S. listed stocks and exchange-traded funds (ETFs) or buy and sell bitcoin.
Cash App makes investing more accessible by giving customers access to hundreds of listed stocks and ETFs, as well as the ability to buy and sell bitcoin. Stocks, ETFs, or bitcoin can be purchased using the funds in a customer’s Cash App balance or from a linked debit card and once the order is filled, all investments are viewable through the Investing tab on the Cash App home screen. The company offers Cash App customers the ability to buy fractional amounts of a stock, ETF, or bitcoin starting at as little as $1, which expands access to investing to more people. For bitcoin buying and selling, it recognizes revenue when customers purchase bitcoin and it is transferred to the customer's account.
In 2020, the company acquired Credit Karma Tax, which adds a tax filing product for individuals to Cash App's ecosystem. Credit Karma Tax provides a seamless, mobile-first solution for individuals to file their taxes for free.
Sellers: The company’s sellers represent a diverse range of industries (including services, food-related, and retail businesses) and sizes, ranging from sole proprietors to multi-location businesses. These sellers also span geographies, including the United States, Canada, Japan, Australia, and the United Kingdom.
Cash App Customers: As of December 2020, Cash App had more than 36 million monthly transacting active customers across the United States and Europe who had at least one financial transaction using any Cash App product or service during the specified period. Cash App has a diverse mix of customers. In the United States, Cash App had transacting active customers in each of the 50 states and nearly every county as of December 2020.
Sales and Marketing
The company has a strong brand and continue to increase awareness of Square and its ecosystem among sellers by enhancing its services and fostering rapid adoption through brand affinity, direct marketing, public relations, direct sales, and partnerships. Its Net Promoter Score (NPS) has averaged nearly 65 over the past four quarters, which is double the average score for banking providers. The company’s high NPS means its sellers recommend its services to others.
Direct marketing, online and offline, has also been an effective customer acquisition channel. These tactics include online search engine optimization and marketing, online display advertising, direct mail campaigns, direct response television advertising, mobile advertising, and affiliate and seller referral programs. The company’s direct sales and account management teams also contribute to the acquisition and support of larger sellers. In addition to direct channels, it works with third-party developers and partners who offer its solutions to their customers.
Partners expand the company’s addressable market to sellers with individualized or industry-specific needs. Through the Square App Marketplace, its partners are able to expand their own addressable market by reaching the millions of sellers using Square. As of December 31, 2020, Square had more than 700 managed partners connected to its platform.
The company’s direct, ongoing interactions with its sellers help it tailor offerings to them, at scale, and in the context of their usage. It uses various scalable communication channels, such as email marketing, in-product notifications and messaging, and Square Communities, its online forum for sellers, to increase the awareness and usage of its products and services with little incremental sales and marketing expense. Its customer support team also helps increase awareness and usage of its products as part of helping sellers address inquiries and issues.
Cash App Ecosystem
Cash App has also developed a strong brand, which can be traced back to the company’s compelling features, self-serve experience, unique design, and engaging marketing.
Peer-to-peer (P2P) transactions serve as the primary acquisition channel for Cash App. Peer-to-peer transactions has network effects as every time a customer sends or requests money, Cash App can acquire a new customer or reengage an existing customer. The company has enhanced the efficiency of peer-to-peer transfers by streamlining the onboarding process for Cash App, enabling customers to sign up in minutes. It offers the peer-to-peer service to its Cash App customers for free, and it considers it to be a marketing tool to encourage the usage of Cash App.
Cash App also uses paid marketing, including referrals, advertising spend, partnerships, and social media campaigns, to expand its network by enhancing its brand, reaching new customers, and improving retention among existing customers.
Additionally, the company sees the launch and advertising of new Cash App features as an important way to attract new customers. Features, such as Cash Card and Boost rewards, bitcoin buying and selling, investing in stocks and ETFs, and cross-border payments enhance Cash App’s utility for customers and provides a new reason for individuals to try Cash App.
Product Development and Technology
The company designs both its Seller and Cash App products and services to be cohesive, fast, self-serve, and elegant, and it organizes its product teams accordingly, combining individuals from product management, engineering, data science, analytics, design, and product marketing. Its products and services are platform-agnostic with most supporting iOS, Android, and web. The company frequently updates its software products and has a rapid software release schedule with improvements deployed regularly. Its services are built on a scalable technology platform, and the company places a strong emphasis on data analytics and machine learning to maximize the efficacy, efficiency, and scalability of its services.
In its Seller ecosystem, this enables the company to capture and analyze billions of transactions per year and automate risk assessment for more than 99.95% of all transactions. Its hardware is designed and developed in-house, and it contracts with third-party manufacturers for production.
The company pursues registration of its trademarks, logos, service marks, trade dress, and domain names in the United States and in other jurisdictions. The company is the registered holder of a variety of U.S. and international trademarks and domain names that include the terms Square, Cash App, Weebly, and variations thereof.
Certain jurisdictions in the United States require a license to offer money transmission services, such as Cash App’s peer-to-peer payments, and the company maintains a license in each of those jurisdictions and comply with new license requirements as they arise. The company is also registered as a Money Services Business with the U.S. Department of Treasury’s Financial Crimes Enforcement Network. These licenses and registrations subject us, among other things, to record-keeping requirements, reporting requirements, bonding requirements, limitations on the investment of customer funds, and inspection by state and federal regulatory agencies.
The company holds an Australian Financial Services License issued by the Australian Securities and Investments Commission to provide non-cash payments in Australia, and it is licensed as an Electronic Money Institution to provide payments services and electronic money in the United Kingdom by the Financial Conduct Authority and in the European Union by the Central Bank of Ireland and the Bank of Lithuania.
The company is subject to anti-money laundering (AML) laws and regulations in the United States and other jurisdictions. It has implemented an AML program designed to prevent its payments network from being used to facilitate money laundering, terrorist financing, and other illicit activity. The company’s program is also designed to prevent its network from being used to facilitate business in countries, or with persons or entities, included on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Controls and equivalent applicable foreign authorities. Its AML compliance program includes policies, procedures, reporting protocols, and internal controls, including the designation of an AML compliance officer, and is designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing.
The company has obtained a conditional order of approval from the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions to open an industrial loan corporation (ILC) in 2021. The opening of Square Financial Services, its ILC, will subject the company to direct state and federal regulatory oversight and requires compliance with all applicable banking regulations and requirements.
The company’s subsidiary, Cash App Investing LLC (Cash App Investing), operates as a broker-dealer and is therefore registered with the Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA). As a broker-dealer, Cash App Investing is subject to SEC and FINRA laws and regulations including, without limitation, how it markets its services, handles customer assets, keeps records, and reports to the SEC and FINRA. Cash App Investing is also registered in each state where it conducts business, and subject to those states’ securities laws and regulations.
The company is subject to certain licensing and regulatory frameworks triggered by its Cash App offering, through which customers can use their stored funds to buy, hold and sell bitcoin, and transfer bitcoin to and from Cash App. The company holds a New York State Bitlicense. The laws and regulations applicable to virtual currency are evolving and subject to interpretation and change. Therefore, its virtual currency services may be or become subject to additional licensing and regulatory requirements by other authorities.
The company sends texts, emails, and other communications in a variety of contexts, such as when providing digital receipts and marketing. Communications laws and regulations, including those promulgated by the Federal Communications Commission, apply to certain aspects of this activity in the United States and elsewhere.
Historically, for the company’s Seller ecosystem transaction-based revenue has been strongest in its fourth quarter and weakest in its first quarter (year ended December 31, 2020), as its sellers typically generate additional GPV during the holiday season. Subscription and services-based revenue generally demonstrates less seasonality than transaction-based revenue. Hardware revenue generally demonstrates less seasonality than transaction-based revenue, with most fluctuations tied to periodic product launches, promotions, or other arrangements with its retail partners. In 2020, typical historical seasonality trends for the Seller ecosystem were impacted as a result of the COVID-19 pandemic and subsequent shelter-in-place restrictions.
Historically, the company’s Cash App ecosystem experiences improvements in revenue and gross profit related to the distribution of government funds as customers have pulled more funds into Cash App, including during the first quarter related to the distribution of tax refunds. During the year ended December 31, 2020, it saw a significant increase in total Cash App revenue, primarily from bitcoin revenue, which contributed 48% of total consolidated net revenue in 2020, and 85% of the total increase in consolidated net revenues in 2020.
Square, Inc. was founded in 2009. The company was incorporated in Delaware in 2009.