Square's new APIs aim to boost its appeal to larger merchants
Square's working to boost its appeal to third-party developers, especially as a growing number of competitors and broader economic challenges loom on the horizon.
Its latest move, announced Thursday, is designed to place Square on the front lines as merchants try to digitize parts of their business beyond payments. Square is offering a new set of application programming interfaces and software development kits that developers can use build functions that are scalable and customized for specific merchants and support activities beyond payments.
"The larger the merchant, the greater the need for customization," said Enrique Patino-Daly, a Square spokesperson, in an email interview. "As merchants grow and Square continues to move upmarket, enabling developers to build solutions on top of our platform will become an increasingly important part of serving the unique needs of larger sellers."
The mobile point of sale company also recently divested Caviar, a food-ordering business, to free up funds to invest in Square Cash, which spills over into both its consumer and merchant-facing products.
Square is increasingly focused on the needs of larger merchants, which have more business management needs than the company's roots in enabling micro-merchants to accept card payments on their smartphones.
Square had released earlier open developer tools to support payments in person, online and via mobile apps. The expansion is designed to shift the focus from payments to orders, which Square describes as a way to connect payments to items, price modifiers, consumers and other functions such as such as supply chain management human resources.
"We’re always working on new tools that help sellers of all sizes make a sale. The evolution of our Developer Platform to include broad commerce functionalities — like orders, inventory and customer management — is a natural extension of that," Patino-Daly said.
Square faces direct and indirect challenges. The company's latest earnings report fell short of analysts expectations, and broader economic headwinds portend challenges for Square's merchant clients.
If struck by a recession or the impacts of a global trade war, merchants may want to streamline supply chains or inventory management, creating a demand for technology that Square's new APIs can fill.
Square's rivals are also following this strategy. Stripe, for example, has added new APIs of its own to serve card issuance and is offering international merchants technology that supports open banking and strong customer authentication for PSD2 compliance and that regulation's impact on other markets.
And other companies that use APIs to enable digital payments for businesses have diversified. Marqeta, for example, has altered its strategy to support supply chain management and payment needs for specific business categories.
Companies such as Square and Stripe, which grew as alternatives to incumbent payment processors, face new challenges from the older established payment processing business.. A series of large acquisitions between payment processors and bank technology vendors has changed the competitive landscape. The consolidated market still leaves room for technology-driven challengers, but they will have to respond to larger incumbents that can more easily offer combined issuance and merchant technology at scale to the same larger merchant categories that Square is pursuing.
Square has explored banking by offering a payment card for business owners and applying for an industrial loan charter. These services could pair with merchant technology through the expanded APIs and SDKs to give Square a larger bundle to sell to merchants. Square has made additional moves to shore up its traditional payments business by expanding its device agnostic hardware to new markets and extending its online store for merchants.
Expanding technology to third parties has also worked for other companies.
PayPal's 2013 deal to acquire Braintree was partly designed to improve PayPal's ability to spot and embed disruptive technology into its existing products. Braintree also owned Venmo, which became part of PayPal's strategy to deepen merchant relationships; the Braintree deal also gave PayPal access to technology from One Touch, which supports PayPal's buy buttons.
Visa opened its technology to third parties in 2016, a move that's helped the card brand build products to counter the trend toward fintechs that offer installment payments as a card alternative. And open technology tools have helped both major U.S. card networks diversify beyond card fees as sources of revenue.