Square's Ecosystem Keeps Getting Stronger

Square (SQ -1.68%) recently announced the launch of a debit card product designed for its payment processing customers. Not only can these merchants access their revenue right away, but Square is giving a 2.75% discount when the debit card is used at other Square customers' businesses.

In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP discuss what this means for Square and its investors.

Check out the latest Square earnings call transcript.

A full transcript follows the video.

This video was recorded on Jan. 28, 2019.

Jason Moser: Let's pivot over to our favorite little payment processor, merchant provider, Square. It seems like they're always in the news. They're apparently in the business of not sitting still, Matt. Last week, the company just released another product to their merchants. This time, it's a business debit card, they're calling it Square Card. It's going to help businesses manage their cash flow by essentially eliminating the time between making the sale and having the funds available. Really, what we've seen, as cash becomes a smaller portion of the money that's being spent, not only here domestically but globally, a lot of this boils down to time and making the funds available. The quicker you can do that, the better off you're going to be. These tech companies are able to build out pretty robust risk profiles that allow them to do that.

I thought that it was pretty interesting. This partnership is actually with Mastercard. You look at Square Cash, that's with Visa, right?

Matt Frankel: Yes, correct.

Moser: What do you think about this debit card?

Frankel: Square's strategy generally seems to be to build their ecosystem as strongly as possible, which is a great business model. It worked really well for Apple. Square's definitely trying to build its ecosystem. The thing that I found the most interesting is that this card offers Square sellers instant access to their money. If, say, a coffee shop uses Square to accept payments. If somebody swipes for a $5 cup of coffee, that $5 is instantly available to the seller through this debit card. They can either spend the money anywhere Mastercard is accepted or access it through an ATM. That's instantly available, which is a big deal. But the thing that really stuck out to me is that Square is offering users of this card a 2.75% discount at any other Square seller. They're incentivizing their own merchants to use other Square sellers to keep the money in the family. That's really a unique way to strengthen the ecosystem.

I think "unique" is my key word when it comes to Square. Like you said, they're in the news seemingly almost every week with some new product, new offering, whatever. All of the things they're using to strengthen their ecosystem are really unique, meaning that no one else is doing this. I don't think the Paypal credit card gives you a discount for using another seller that accepts Paypal, just to name one example. Visa doesn't give you a discount for using your card anywhere else Visa's accepted, for example. It's a really unique and innovative way to strengthen their ecosystem.

Competitive risk is everybody's biggest concern when it comes to the Square. Is Paypal going to steal their market share? Is somebody else going to come up with a cost-effective way for small businesses to accept credit cards? What's to prevent that from taking Square's business? And the answer is, things like this are what's going to prevent it from taking Square's business. I love this product. I think it's a lot more significant than the market is giving it credit for right now.

Moser: Yeah, a lot of value in the network. That's what we continue to talk about with Square. They've built out a very, very robust network, and they continue to solicit, from their merchant partners, what their merchant partners want the most. They're asking their customers what they want. They get that feedback and they start to build and offer these new products.

I tell you, I was only half kidding when I said it seems like Square's in the business of not sitting still. In this space, in the payments space as a tech company like that, you need to be innovating and bringing new products to market at a rapid pace. It certainly seems like they're doing that. Furthermore, it seems like they're doing it well. It seems like they're bringing products that people really like. It seems like this is a company that's just continuing to do what we've hoped it would do. I suspect that shareholders like us and our listeners feel pretty good about the fact that we all own shares today.