Square Inc. is still losing money, but less so, and the company made it clear Wednesday its sights are firmly fixed on selling its products and services to larger merchants. “We’re not just about micro-merchants,” chief financial officer Sarah Friar told equity analysts in a conference call to discuss the San Francisco-based company’s third-quarter results.
Beyond its basic point-of-sale payments business, Friar and chief executive Jack Dorsey pointed to progress with services like Square Cash and Square Capital. Four years after its launch, the Square Cash peer-to-peer payments service is “starting to get to a real meaningful size for us,” said Friar, though the company did not disclose any numbers.
More important than the P2P function is the service’s ability to induce user spending with low-cost funds, Dorsey said. That, he said, sets Square Cash apart in a P2P field that includes not just PayPal Holdings Inc.’s Venmo but also Zelle, owned by a network of major banks. “We believe we transcend what our competitors are focused on. Our focus is on spending,” he pointed out. “We’re seeing a huge uptick in this usage,” he added, again without citing specifics.
An example of this emphasis is Square’s launch in June of a Visa-branded Square Cash debit card, he added. However, PayPal three weeks ago opened up Venmo for use at as many as 2 million PayPal-accepting merchants.
Much of the company’s latest plan for Square Capital, launched in May 2014, depends on its application for an industrial-loan corporation charter in Utah, Dorsey and Friar said. Dorsey said there was little to say about the status of that application, which Square filed in September. “No update, we’re pushing really hard to get clarity,” Dorsey told the analysts.
The bank would allow the company to bring funding in-house for Square Capital, which lends to small businesses. “The ILC represents an efficiency for us. It allows us to go faster, take a different tack,” Dorsey said.
The push upmarket to bigger sellers took a step forward last week with Square’s launch of an all-in-one point-of-sale device, Square Register. The device sells for almost $1,000, a superpremium price point for Square, which started out in 2009 giving away dongles to allow tiny sellers to accept cards on smart phones.
The importance of penetrating the larger-merchant market lies in its higher retention rates and the efficiency of onboarding, Friar said. “As we move upmarket, we’re seeing double-digit retention rates,” she told the analysts. At the same time, intuitive software allows these merchants to sign on with minimal handholding, she added. “Eighty percent of larger merchants self-onboard with Square,” she said. Transactions on Square Register are priced at 2.5% plus a dime, less than Square’s standard 2.75% rate.
For the quarter ended Sept. 30, the company logged $585 million in total net revenue, up 33% from the same quarter last year. Transaction-based revenue accounted for 87% of that total. Subscription and services revenue, where services like Square Cash are accounted for, saw revenue climb 84% to $65 million.
Square cut its net loss in half compared to the same three months in 2016, finishing the third quarter with a loss of $16 million. The loss for the nine months through Sept. 30 came to $47.2 million, down from $156.4 million a year ago.