A few years after a deal with Starbucks didn't boost processing volume, Square's returning to partnerships to jog its volume.
Vend and TouchBistro will each build integrations with Square, giving their respective customers the option to add Square’s processing capabilities on to the services each startup already provides for an array of larger retail and restaurant clients, Square announced Aug. 29.
Square at its heart is a merchant acquirer and with the exception of its short-lived processing partnership with Starbucks, up to now the company has acquired merchant customers directly, using Square’s own hardware, said Gil Luria, an analyst with Wedbush Securities.
“Square is now trying to keep its volume growth by expanding to customers they do not acquire themselves, but are referrals, and I don’t believe this is a profitable strategy,” Luria said.
Square's financials are under close scrutiny, as it transitions from giving away card readers to charging merchants for new readers with mobile payment and EMV capabilities.
San Francisco-based Vend provides inventory and retail management services for merchants in the U.S., Canada, Europe, Australia and New Zealand. TouchBistro, with offices in New York and Toronto, specializes in business-management services for restaurants with multiple locations. Both companies cater to merchants with higher transaction volume, which is crucial to Square’s growth strategy.
The arrangement the companies have with Square means clients of Vend and TouchBistro need not make any front-end changes if they’re satisfied with their existing point of sale systems, but Square will build a streamlined path for merchants that want to switch to its processing services.
With these integrations, Square is able to increase its payments processing volume without TouchBistro and Vend sellers switching to Square’s point of sale, a Square spokesperson said.
Square declined to disclose details of the referral fees TouchBistro and Vend will earn on new processing customers Square wins through the partnerships, but observers said the fees could undercut revenues it earns through the deal.
One problem is that because of its relatively smaller size, Square has a higher cost structure than larger merchant acquirers, and subtracting referral fees for new customers will likely hurt its income,” Luria said.