Square, Inc. and its Potential to Bring Value to the Cryptocurrency Asset Class

Since Square, Inc. (SQ) announced that its Cash App will provide a gateway to purchasing and selling Bitcoin, I have been following their earnings releases to see how much adoption they have gathered and what it could mean for the Cryptocurrency space. In reading these documents, I have been excited by the potential Square’s business model and efforts mean for the cryptocurrency space.

Square states on their website:

https://squareup.com/about

This is simple but has great implications for the payment processing space. They have been able to assist millions in paying and receiving money from payments. The main focus over the last couple of years is providing turnkey solutions to small businesses to have the ability to receive payments from customers from mainly credit cards. Amazingly, most small businesses initially started with cash only given the enormous costs of implementing credit card systems provided by traditional banking partners. When Square entered, they were able to reduce costs substantially by not only providing the hardware but also the software to manage small business payments. This has since extended to digital solutions through their cash app which has also improved eCommerce transactions for small business as well. It now seems that as they continue to onboard more clients, they will start researching how to add additional payment options with Bitcoin being the first of them. This could be substantial as it could drive adoption for payment processing in various cryptocurrencies.

In their Q1 earnings call on February 25, 2018, they stated their three main goals: (1) strengthen omnichannel commerce offering (retail & online), (2) expand financial services offered, and (3) growing markets currently in footprint. All three could work to expand their presence with cryptocurrencies as well. They have always concentrated on providing payment solutions so it would be expected for them to expand in cryptos, particularly as they look to grow outside of the US where the unbanked population is relatively large.

How much success have they achieved so far? Well, in the same earnings call, they reported having over seven million Cash App users. These users engaged in over $90 million of payments. About half of their user base (small businesses) generate over $125,000 in sales. Transaction fees are approximately 1% which is higher than most cryptocurrency fees but still less than traditional card payment services. There is a vested interest for both Square and their customers to look at the alternatives of cryptocurrencies in the coming quarters as it can add margin to both sides. It also demonstrates the threat that digital payments as a whole represents to the traditional banking system as they have even acknowledged.

In their most recent earnings call (May 2, 2018), they started reporting Bitcoin transaction volumes which achieved about $34 millions in the first quarter. They made a $200,000 margin and retained very little of the cryptocurrency on their balance sheet. However, their CEO Jack Dorsey said they continue to “actively learn” about the payment processing of Bitcoin. He also stated,“Bitcoin for us is not stopping at buying and selling. We so believe that this is transformational technology for our industry and we’re going to learn as quickly as possible. We also believe that it does provide an opportunity to get more people access to the financial system and certainly that’s in source of assets, but also ultimately over time through currency.”

Jack Dorsey, CEO, is also CEO of Twitter and recently was part of a group of investors that invested in Lightning Labs which is the organization spearheading the Lightning Network technology for rapid payment processing with little costs. This demonstrate his influence on the belief of the potential of cryptocurrencies to the industry. He has also stated that Bitcoin could be the single worldwide currency in the future. However, he did not stop at Bitcoin but also discussed thoughts on blockchain technology as well: “There is certainly a ton of applications around creating more efficiencies within our business, but also creating new opportunities as well.”

So we see how Square is among the premier, high-profile companies whose leadership is taking stakes in the evolution of digital payments through cryptocurrencies. If they can achieve the level of success they have with card processing by providing easy and cost efficient infrastructure to small business and consumers in the digital space, adoption could come sooner than most think. We have seen how each cycle of payment processing adoption has been shorter than the previous: it took paper money about 300 years to overtake gold & silver but plastic cards only 30 years to overtake paper. How little will it take digital solutions and cryptocurrencies to take the lead?

What are your thoughts as more companies look into entering the cryptocurrency space to bring solutions to business and customers? Will these platforms help increase adoption or not? I look forward to engaging with you on your thoughts in the comments below.

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