REVEALED! Square's Not-So-Secret Strategy To Win The Small-Business War

Square cash register at Café DeliseThis is Square’s future.

Photo: Owen Thomas

Square, the mobile-payments startup that’s showing electrifying growth of late, just announced new features, like punch-card-style loyalty programs, for its Square Register iPad app. And those will likely prove crucial for accelerating its growth and fending off rivals.

The entry of competitors like PayPal, VeriFone, and Intuit have only proven that Square’s plastic card reader and the back-end payments processing it provides are commodities.

They’re competing with Square circa 2010, while Square is looking two years in the future. It’s the services Square layers on top of swiping cards and processing payments that will build its future with customers.

Customers like the owners of Café Delise, a neighbourhood café in San Francisco’s North Beach. We stopped in the other day after we saw the café pop up in our Pay with Square app and saw that they’d ripped out their cash register and replaced it with an iPad and a Square card reader.

Even the cash drawer and receipt printer came from Square, the product of a recent hack-day effort at the company to make Square’s offerings more complete.

The family member manning the register that morning told us Square replaced an old-fashioned credit-card swiping machine and payments service for which he paid a monthly rental fee.

He showed us the Square Register app he was running, which tracks all the coffee drinks and pastries he sells.

His one complaint: Square didn’t have a loyalty program at the time. He used a standalone smartphone-card app, Stampt, for that. (Google acquired a similar smartphone loyalty-card service, Punchd, last year.)

Now he won’t have to launch another app on his iPad to handle frequent-customer rewards. (Here’s a video of Square’s new rewards program at work.)

He also won’t have to offer check-in specials through Foursquare: That’s another feature Square now offers via its Pay with Square app, which shows local merchants who accept Square on a map—also revamped in this latest update.

That’s how Square is going to keep moving up the payments chain: by offering more and more services, like inventory management, sales analysis, loyalty cards, and demand generation.

It was easy for Delise’s owners to junk their old payment terminal—after all, they were just paying by the month for it. But it will be far, far harder for them to replace all of Square’s services. 

And they’re exactly the kind of merchant Square wants to go after: repeat, local business.

Meanwhile, Square will collect a 2.75 per cent cut of Delise’s transactions as more or less of an annuity, making a healthy profit after splitting fees with Visa, MasterCard, and the banks.

Square’s not the only one going after this market with this strategy. But its startups like Swipely, ShopKeep, and LevelUp that it should be eyeing warily, not lumbering giants like PayPal and VeriFone.


Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.