Square (NYSE:SQ) has always been a preferred partner for small businesses like salons and coffee shops; its simple interface and suite of solutions are built to help companies launch and succeed. But small businesses are a difficult market for payment processors, because margins are low and it takes a large sales staff to attract and set up customers. That's one reason Square has lost money for most of its history.

What Square's management is trying to do is leverage its large suite of products and payment solutions to attract larger customers. The company will offer lower transaction rates for businesses with high annual transactions, and is adding financial services as well. The strategy could lead to a big improvement in profitability long term.

A customer checking out at a bakery counter

Image source: Square.

Square eyes the big fish

Earnings releases can often tell investors where a company is focusing its efforts. In Square's case, management highlights the percentage of sales coming from large sellers (over $500,000 in annual gross payment volume) as a way to measure a change in its strategic direction. Over the last two years, Square has increased volume from large sellers from 15% of total sales to 22%.

It's no coincidence that gross payment volume jumped from $12.5 billion in the second quarter of 2016 to $21.4 billion in Q2 2018, and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased from $13 million to $68 million over the same time frame. Bigger customers are more profitable, and they're helping turn Square's finances around.

New products compound Square's new focus

Square's latest product, Square Installments, is a product from Square Capital intended to grow the large-transaction business. Square is offering its customers the ability to give their customers payment options that last three, six, or 12 months for transactions from $250 to $10,000. Interest rates range from 0% to 24%, depending on the terms and customer.

Square is trying to level the playing field with installments that smaller companies (though big for Square) can now offer. You don't need to be a multinational corporation to have simple financing now -- and that's intended to help Square add customers that may generate $500,000 to a few million dollars in revenue, but are too small to have their own financing packages from banks.

The growth story continues

Square Installments is the kind of product that will keep Square's business growing. The company can continue to offer services as it always has to salons and coffee shops -- but now larger stores that may sell items worth hundreds or thousands of dollars have a reason to consider the company as well. That's a big shift for Square, and long term, it may help the company generate much more profit than it has to date.

Travis Hoium owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has the following options: short January 2019 $80 calls on Square. The Motley Fool has a disclosure policy.