COMMENTARY: How Square’s Platform Makes Ho-Hum Products Unique

Last week payment processor Square Inc. announced its Square Installments service which provides loans of up to $10,000 to customers of its merchant clients. Like all similar services, it splits a consumer’s repayment of large purchases into fixed monthly amounts. Installment solutions are not unique in payments, far from it. But Square’s platform is unique, so even a mundane offering like installment payments becomes a powerful asset in Square’s hands.

The merchants’ value from any installment offering is that it can offer financing options to customers that either can’t or don’t want to use credit cards. It helps the merchant by closing sales with unbanked and underbanked consumers. It can increase the size of consumer purchases, and complete sales that would otherwise be lost. Incremental value can be had if the installment offering is merchant-branded. That strengthens consumer-to-merchant relationships.

On Square’s platform, this simple offering is even more powerful. Some examples why:

• For consumers, Square’s Cash App, a person-to-person payment service with an affiliated Visa prepaid card that can be used at Visa-accepting merchants, can make the installment service much better than similar offerings from non-Square processors. Square can pre-approve Cash App customers, and use Cash App enrollment data and processes to make applying for an installment loan really, really easy. Competitors won’t have this advantage, so taking an installment loan at a Square merchant will be a far better experience than at non-Square merchants. Because of this, Square’s product will have higher merchant and consumer adoption rates than competitive products.
• Merchants will be intrigued by the ability to market to the rapidly growing Cash App customer base, by leveraging Square’s brand, by offering additional financing options, and by making it all easy to use. The Cash App brand and Square’s platform advantages make Square’s installment product stand out versus competitive offerings. If Square chooses, it can easily white-label the product to make it look like the financing is provided by the merchant.
• Square benefits from new revenue streams into Square Capital, its merchant-financing service, from expanding the value it can offer to larger merchants and to merchants with a large average transaction size, and from converting its merchant customers into an acquisition channel for the Cash App. As the Cash App service gets bigger—the card already is generating $3 billion in annual volume—Square Capital gets bigger and vice versa, so the products will literally feed each other. Together these products create a self-feeding circle of value that also feeds Square’s core payment offering.

This is why Square has the most valuable platform in payments. Ho-hum products on Square’s platform are no longer ho-hum products. At the same time, Square can create synergistic value across its products, so that the platform literally feeds itself.

This new Square Installments service increases the value of multiple Square products, increases Square’s value to existing merchants, and increases its ability to expand its penetration into new segments. At the same time, it’s all globally scalable.

—Rick Oglesby is president of Mesa, Ariz.-based AZ Payments Group LLC. Reach him at rick@azpaymentsgroup.com.