Will Square Inc. apply for a national banking charter, now that the Office of the Comptroller of the Currency has opened the door to financial-technology firms? As of late Wednesday, the answer remains unclear.
“We’re really well-positioned to broaden access to the financial system, which is our core purpose,” said Square chief executive Jack Dorsey, responding to a stock analyst’s question about Square’s intentions in the wake of the OCC’s Tuesday announcement that fintechs are welcome to apply for national charters. Dorsey ventured no further than that on the topic.
Square is a natural candidate to apply for a bank. It recently withdrew an application with the Federal Deposit Insurance Corp. in connection with a proposed industrial loan corporation, a type of bank favored by nonbank companies. But the company is having “an ongoing dialog” with the FDIC, Dorsey said during Square’s second-quarter earnings call Wednesday. “We have decided to withdraw and refile,” he added. Square’s decision to withdraw came in the midst of strong opposition to the application from banking groups, notably the Independent Community Bankers of America.
But while investors will have to wait on the question of Square’s banking intentions, they can at least bask in the glow of relatively strong results for the quarter ended June 30. Square, which started out in 2009 with a simple card-reading dongle that small sellers could attach to their smart phones to run transactions, now points to efforts in restaurants and other larger sellers, food delivery with its Caviar unit, card transactions with its Visa-branded Cash App plastic, and fast merchant funding with its Instant Deposit feature.
Indeed, while Cash App is a peer-to-peer payments app that competes with the likes of Venmo, Square these days stresses the card, which allows users to tap their funds to buy from merchants. The card is doing $3 billion in annualized volume, the company reported, with $250 million in purchases in June, up from $90 million in December. To juice the card even more, Square has launched Cash Boost, which offers cash discounts at places like Shake Shack.
While Square reported in December that the app had 7 million active users, executives refused on Wednesday’s earnings call to update that number, instead referring to its popularity on app markets. Besides, said Dorsey, “We want to focus on the card itself. We’re seeing evidence this is a primary account for [people].” Others are paying attention. Rival Venmo, a unit of PayPal Holdings Inc., recently launched a Mastercard for its users.
On the merchant side, Square officials pointed to the popularity of a 3-year-old feature called Instant Deposit, which racked up $4 billion in volume in the quarter, double the usage seen in the third quarter last year. The feature, which also works with Cash App, takes advantage of a card-routing routine called the original credit transaction. Typically used for cardholder reimbursements on merchandise returns, the OCT can also route funds within minutes not to the cardholder but to the merchant. “Speed really matters to our customers,” said Sarah Friar, Square’s chief financial officer.
With its penetration of larger restaurants, as well as retailers and service businesses, Square reported 50% of its gross payment volume now comes from merchants processing at least $125,000 annually with the company, up from 46% a year ago and 42% at this time in 2016. Payment volume totaled $21.4 billion for the quarter, up 30% year-over-year.
Though it’s still losing money, the San Francisco-based company trimmed its loss to $6 million, down from $24 million in the first quarter. Total net revenue came to $815 million, a 48% increase year-over-year. Just $18 million came from POS hardware, the company’s original business, up 78%. The business includes Square Stand, Square Register, and Square Reader.