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How Square adapted in a crowded market
Square has come a long way since it debuted in 2009 with a simple plastic card reader for micro-merchants. But it didn't make its journey alone.

Square has made several key partnerships, acquisitions and more as it sought to not only build the mobile point of sale market but also diversify to defend against the onslaught of competitors. It's a much different company today, even if its tiny mobile card reader doesn't look much different. The company has steadily swallowed up new technology to fundamentally change what merchants can do once they get onto Square's platform.

This listicle is compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald and David Heun. Click the links in each item to read more.
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Square's multimillion-dollar deal for web design muscle
To expand beyond smartphone payment hardware, Square has to contend with a lot of digitally-savvy rivals. Its $365 million deal to buy Weebly, a San Francisco-based web design company, is a major weapon in its growing arsenal.

Square can turn Weebly's assets into a full-fledged omnichannel machine, a source of subscription income and a passport to millions of potential clients outside of the U.S.

Once the Weebly deal closes during the second quarter, Square will be able to combine Weebly's expertise with its own mix of payments, store credit and delivery, powering a mix of sales, order processing and digital content, serving the "omnichannel" trend so desired by payment processors and merchant acquirers.

It also gives Square a substantial base of subscription revenue.

Weebly has 625,000 subscribers among its millions of customers for website hosting, design and marketing. And since 40% of Weebly's customers are outside the U.S., Square will be able to accelerate its international expansion.
Caviar
The many ingredients of a food delivery operation
Square Inc. purchased food delivery company, Caviar, in mid-2014 in a move to add non-payment features to its mobile payment and ordering system.

Caviar is an alternative to an in-house delivery service allowing consumers to get items delivered from restaurants that do not generally offer the service.

The deal occurred while Square still had a consumer wallet called the Square Order app, which allowed consumers to order and pay ahead of a visit to a Square merchant. Square Order was one of many short-lived Square wallet apps that predate its current consumer offering, Square Cash.

Though Square reportedly tried to sell Caviar in 2016 to companies such as Uber, GrubHub and Yelp, it wound up keeping Caviar and building upon it through further acquisitions. Among the latest was Entrees On-Trays, which has operated in the Dallas area since 1986. Square bought the company in January 2018 and made it a part of Caviar, significantly expanding the number of restaurants and volume the platform handles in the Dallas area, where Caviar has operated since 2015.

Last year, Square also bought OrderAhead, a dining pickup startup. And this April, Square bought the assets of Zesty, a corporate catering service, to further boost Caviar's capabilities.
square reader with Visa card
An early lifeline from Visa
When Square launched, its product's biggest differentiator was its simplicity. The small, square-shaped reader did little more than read card data and pass it along to an app, but this made Square an easy target for attacks from more experienced competitors.

Notably, Verifone accused Square of selling a device that could be misused as a card skimmer. To fight back against this allegation, Square needed to demonstrate a commitment to security — and Visa quickly rushed to Square's side to further this cause.

The 2011 investment coincided with Square's announcement at a Visa security conference in Washington, saying it planned to include data encryption measures in its devices in the coming months. Visa also released a list of best practices for securing mobile transactions.

Visa again invested in Square after the company went public. Its new stake, obtained in early 2016, represents 9.99% of “beneficial ownership” of Square’s Class A common stock; Visa said its holdings represented approximately 1% of Square's fully diluted common equity as of December 31, 2015.
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How Square's failed Starbucks pact made it stronger
Square's rocky relationship with Starbucks had a promising start. In mid-2012, Starbucks announced a $25 million investment in Square and plans to use Square to process its payments.

But early on, it was clear that Starbucks was getting a lot more out of the deal than Square did. Starbucks was saving money on processing fees, but it was not using Square's iconic mobile card readers or its mobile wallet app. As part of the investment, Starbucks' then-CEO Howard Schultz joined Square's board, but stepped down just a year later (the companies said afterwards that the board role was always intended to be a one-year stint).

When Square finally went public in 2015, the public learned the truth — it cost Square more to process a Starbucks transaction than what it received in revenue from coffee sales.

But Square did get something valuable out of the Starbucks relationship: A clear lesson in what Square needed to do to properly serve a client of Starbucks' size.

“It was never a good fit, because it is not what Square does,” said analyst Gil Luria at the time of the split. “Square does a great job in simplifying payment acceptance for micro and small merchants and that has absolutely nothing to do with what Starbucks wanted … Those enterprise-scale customers need enterprise-scale support, so that’s not a good target for Square at this point."
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Role reversal: Apple comes to Square for help
Apple Pay's October 2014 launch was seen as so bank-focused that some retailers griped or outright rebelled against the Apple mobile wallet. But in June 2015, Apple made a major peace offering to the merchant community — and it worked with Square to make that happen.

One of the major issues with Apple Pay was its reliance on Near Field Communication for contactless payments, something that is unlikely to be in place at the small merchants that use Square and similar mobile card acceptance devices. So it began working with Square to promote a reader specifically designed for contactless Apple Pay transactions, bringing Apple Pay to the small stores and flea-market sellers that were previously left out of the Apple Pay deployment.

Apple's marketing muscle also helped Square cross an important threshold — getting merchants to pay to upgrade to a more capable mobile card reader. Square's original magstripe reader was essentially free, but its later EMV and NFC readers carried a price tag, a move that fundamentally changed the value proposition for Square merchants. In addition to working with Apple, Square began offering its $49 NFC reader in installments of $1 a week.
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SAP gives Square a chance to branch out
Mobile point of sale providers such as Square are under pressure to broaden services beyond payments as the transaction hardware becomes commoditized.

To that end, Square began collaborating with SAP in late 2017 to embed more tools that can help merchant acquiring. Square's merchants can use SAP Business One to support accounting, project management, operations and human resources, tied to Square's hardware, point of sale, settlement and financial services.

For example, sellers using SAP Business One can access a single view for payments and sales data, and access to financial services and hardware to accept chip cards and Apple Pay.

Square has been adding myriad services as it seeks to become a full-service merchant gateway. Square has long offered lending to its small business clients, using payments records to manage credit risk and to allow merchants to pay back the loans. The SAP collaboration would allow Square to offer a broader menu as PayPal, Stripe and traditional merchant acquirers bulk up to retain merchants.
Jacqueline Reses, head of lending at Square
Square makes a major move into banking
Square can provide loans to merchants based on their transaction history, allowing merchants to pay back the loan as a portion of their Square transactions going forward.

To expand this, Square filed an application last year to charter an industrial loan company. Jacqueline Reses, the company’s head of lending, talked at length about Square’s plans for the new bank, which would be headquartered in Salt Lake City, capitalized at $56 million and wholly owned by Square.

But she made clear that, though the application has already stirred opposition from community bankers, Square’s aim remains helping small businesses that are generally not receiving credit from traditional financial institutions.

“Over 67% of our [customers] can't get financing anywhere,” she said. “And so we are their sole source of financing. … We think that enables us to serve an underserved market in a way that very few others have.”

Some of the company’s ambition to reach untapped markets can be seen in the ILC’s board of directors, which includes Marla Blow, the founder of a Washington-based credit card company targeting underserved consumers, who previously worked at the Consumer Financial Protection Bureau developing the agency’s priorities on prepaid and credit cards.

The firm also has ambitious plans to use the data it acquires from payment processing to open up new avenues of lending.