Square Now Processing $4 Million In Mobile Payments Per Day | Hacker News Reader

Square Now Processing $4 Million In Mobile Payments Per Day

techcrunch.com

87 pointsssclafani29 comments

This is a startup I want to put stock in.

This idea is great. I can see it being ported to all smart phones... the cash register industry completely disrupted.

Though it may be cool, it's not disruptive at all, actually.

http://www.quora.com/Aaron-Greenspan/Of-Round-Pegs-and-Squar...

It's actually very disruptive, that post is missing the point. Yes, for some established businesses, it may not make sense. And they aren't overthrowing credit cards or banks, but that's not their aim. Square is democratizing payments--allowing anyone to be able to accept a credit card payment. Think of the implications of that: any small business owner will be able to accept credit cards, anywhere. Or my friend can directly pay me back money he owes me with a card. That wasn't possible before. They also have a really good chance of closing the "redemption loop," which is a huge, hairy, unsolved problem. They're very disruptive.

"any small business owner will be able to accept credit cards, anywhere. "

Sure, after buying an iphone for around $200 + $100/month in data plan. Not cost effective for a "small" business owner.

"Or my friend can directly pay me back money he owes me with a card. That wasn't possible before. "

Yes, you could do that with paypal, without carrying a huge hardware in your pocket and paying less in transaction fee.

This is not to say they won't make money. They will, but many others will make even more money.

That's presuming they don't already have a cell phone and intend to use mobile data. If they already have a phone (extremely likely), their cost would be more realistically $75 (mid-range Android phone) + 15-30$ a month depending on data plan. And if they have wired Internet and don't want to change up phones, they can simply use an iPod touch ($230 once) and use their existing connection (already paid for).

I don't know who you mean by small business owner. I am sure high end small business owners(coffee shops, bars, night clubs) will eat it up and agree with it. I am talking about taco truck, etc. If there are many transactions/customers, which would be cost effective for the SBO, the data usage might go over the limit, and I am sure ATT/Verizon will have something up their sleeve to over charge(apart from the $30/month) which would make this less appealing, apart from the already high transaction cost.

This objection is idiotic. The number of transactions required to go over a 2GB limit would be in the millions. A 200mb limit would still be in the thousands if not tens of thousands.

Yeah, well if square is "disruptive", millions is not far away.

On the off-chance you're not trolling, Square wouldn't be processing all the transactions with a single android phone. The other poster's idea was that individual small-business owner would each have a device.

It works on an iPod touch or an iPad with wifi.

Actually there is a lot of dissatisfaction among small and medium-sized retailers / restaurants with their POSes. Expensive to install, expensive to maintain, software that's stuck in the 90s, and shady processing deals. They don't call em POS for nothin. Fixing that is hugely disruptive.

Your argument is based on a false premise. Nobody said things would change "overnight" at every level. Square is starting with the simplest case. No doubt they're hard at work building out a more sophisticated register platform that will move them upmarket.

Funnily enough, my friend's startup is doing a web-based POS system and they have adopted the tagline "POS... Finally it means Point Of Sale again" :-) And yes, you are right, there are several players out there now who are planning to be hugely disruptive in this area, because the incumbents have rested on their laurels too long.

Well at least one of Dorsey's startups isn't having any trouble generating revenue. ;)

Neither are having trouble generating revenue: http://mashable.com/2011/01/24/twitter-revenue-150-million/

You realise that piece is about a marketing firm's prediction of their growth in 2011?

Perhaps I'm being overly pessimistic but I see Twitter as this decade's Myspace.

Myspace was generational. A given (mostly teenager) demographic used it through the early to mid part of the last decade. It was, as we all know, supplanted by Facebook. There are many reasons for this, among them that Myspace (IMHO) sat on their laurels and that broader appeal (ie FB's cleaner page design rather than the Flash-swamped monstrosity that was Myspace) ultimately won out.

Twitter was and is touted as a means to:

1. send status updates to your friends (original idea);

2. disseminate news; and

3. follow "celebrities" (broader than the Hollywood notion of celbrities).

In spite of Twitter's stated 175 million accounts [1], how many uses does Twitter REALLY have? [2]. They don't state their 1, 7 and 30 day actives. As another example, Facebook's 750 million users is "monthly actives' [3].

Registered accounts and monthly active users are an important distinction, particularly for Twitter as it appears many people signup, try it out and then "leave". I believe that this problem is far bigger than Twitter has let on.

I simply don't see use (1) taking off. Twitter seems to be a medium for (3). There is definitely a market for that but I think it's a fragile one, easily replaced by something else.

That leaves (2), which is a complicated story. If there's two things podcasters (particularly former journalists, in the traditional sense) like to wax lyrical about it's the death of newspapers and how Twitter is changing the (journalistic) world, both of which are now boring (to me).

Twitter suffers from what I call "bubble thinking", much like Quora does. People in the Valley, in social media, etc think its huge. Normals have, by now, probably heard of it but won't necessarily even know what it is (let alone use the service).

My (unsubstantiated) feeling is that big brands haven't embraced advertising on Twitter. They're simply playing with it. Twitter advertising suffers from the same problems Facebook advertising does: unlike Google, which has the huge benefit of intent (you're searching for something, so Google knows your intent is to find out something about it, a natural fit for advertising), most people view such advertising as noise unrelated to what they're doing.

In Twitter's case it's exacerbated by their 140 character message format and the heavy reliance by users on third-party clients that Twitter doesn't control.

I know it's hip to not worry about how you monetize something in the Valley. While I generally agree with that sentiment, I think Twitter has gotten to the point where it's now a problem.

They recently had an $800 funding round. A profitable company doesn't do that. What I'd be looking at is this: where is that $800 million going? Is it largely paying out early investors? If so, run away. Run as fast as you can (much like Groupon).

[1]: http://techcrunch.com/2010/10/31/twitter-users/

[2]: http://www.businessinsider.com/chart-of-the-day-how-many-use...

[3]: http://techcrunch.com/2011/06/23/facebook-750-million-users/

Most of the people I know use twitter almost exclusively for use #1. In my friends, we don't want news or celebrity posts taking up our feeds, we use it to chat and share stories. And this group isn't just local, I'm friends with entertainment professionals all over the US, and twitter is the best way to ask for help or to share a hilarious on-site anecdote.

> eMarketer came to the $150 million figure by comparing Twitter with Facebook, which had ad sales of about $150 million in 2007, right after it got serious about selling ads.

So that number is meaningless. Twitter and Facebook advertise totally different, and everyone visits Facebook directly, whereas many get Twitter via 3rd parties.

Such a simple, elegant solution to fixing an abusive and shady marketplace.

Square completely clicked for me when I recently paid for coffee @ a small neighborhood stand.

Their digital receipt was cooler than anything I've seen at big merchants, and because they virtually give away the service and eliminate the monthly every small business owner is going to wind up using them.

At $4m a day their take is ~2.75% or ~$110,000/day revenue - figure they've got 100x that in potential growth?

2.75% looks high to me. Citation?

https://squareup.com/ 2.75% per swipe.

Really? Citation? It's on their homepage https://squareup.com/ as the top right item below the fold, and on https://squareup.com/pricing

Some (most?) of that 2.75% is going to other people. I know nothing about Square's internal infrastructure - but they are either paying ~3% to some other payment processor, or have become their own processor and are paying ~2% in interchange fees directly to the issuing bank. So, in the best case, Square is pulling in closer to ~0.75% => $30K/day in revenue.

To make matters worse, that 2% in interchange fees is an average across all credit card transactions. But most interchange agreements are "fixed fee + percent of transaction" and I suspect Square's average transaction is significantly smaller than the average credit card transaction. That would imply their cut is even smaller than the 0.75% that it would be otherwise.

On the plus side, at scale Square should be able to directly negotiate better interchange fees with issuing banks - but I'd be very surprised if they ever drop below 1% on average. It would be impressive (but possible, given Square's pull in the industry via Visa et al.), that they've already pulled off some agreement to that effect.

Some processing companies include interchange as revenue and some don't. If Square does, then they still have ~$110,000 / day in revenue, and what you're calculating is their profit. But you're still right that they have high variable costs because of interchange and therefore may not be as profitable as one might think with that revenue.

As an example, Heartland includes interchange in their revenue. "Heartland reported $526 million in gross revenues for the quarter... Interchange accounted for $365.2 million of second-quarter revenues."[1]

At Braintree we don't include interchange in our revenue, so our processing volume is higher than Square's, but our revenue is lower.

[1] http://www.digitaltransactions.net/news/story/3138

That's interesting... I wonder why there is no GAAP measure for accounting for pass-through revenue. I can see it both ways (this problem exists for Groupon as well, who counts the full amount of the voucher as revenues even though they pass half of it on.

Square, like all other merchant account providers has to pay interchange fees, which are ultimately sent to the banks that issue credit and debit cards, and assessments, which are how Visa and Mastercard make their money. It is possible that they have negotiated a sweetheart deal with Visa and Mastercard, for lower interchange rates, but I think it is unlikely.

With their pricing scheme Square loses money on every transaction below ~$6 in size. They will make money for transactions between $6 and $15, will lose money between $15 and $18 and will make money on transactions larger than $18.

The reason for the weird discontinuity at $15 is that Visa cards and Mastercard Debit (but not Mastercard credit) cards have a special, lower, rate for small transactions called a small ticket rate. If you are a merchant with a very small average transaction size, you absolutely should use Square - their price is so low for those transactions they are losing money and subsidizing the user.

In reality, their average transaction is not as small as you'd think. It's actually ~$83 (some simple math from the screen Jack posted on his twitter), so they are making a good deal of money, but at much smaller margins than most people realize.

More details (assumptions, charts, etc): http://feefighters.com/blog/can-square-make-money-with-its-n...

Also relevant: Compare prices of Square vs. a traditional merchant account http://feefighters.com/square-calculator

While i love Squares concept I wonder how they would handle international growth, i see that as being very difficult. But maybe they dont even need that.

In most of Europe (im from GER) most people dont even have credit cards. I have also never ever seen someone pay for something like a coffee with a credit card here, to me that sounds absurd

Really? That's fascinating.

I pay with a credit card for everything possible - I don't have to worry about carrying cash, don't have to carry change, it takes less time, and I get a comprehensive list of everything I've bought (and for how much) at the end of every month.

To me, extending my credit card usage from interactions with stores to interactions with people (a la Square) would be (and is) awesome (no more checks!).

Square is great for the small guys who don't want monthly fees. If you do anything over $2000 a month, intuits gopayment is a full 1% lower with a $20 monthly fee. I even like gopayments app a little better. But the free cardswiper they give out is quite rubbish.

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