Square (SQ -4.25%) has been one of the most disruptive companies in finance over the past decade, advancing the mobile payments market and adding services that make small businesses easier to run than ever before. The company isn't yet solidly profitable, but has built a $28 billion market cap that may be scratching the surface of its potential.
We know where Square has been, and what's on its road map. But thinking about where the company could be in 10 years opens a world of possibilities.
Where Square is now
Square started as little more than a payment company on mobile devices. It built an app and a simple swipe device that connects to smartphones, allowing merchants to take payments on the go. It charged a flat percentage fee and handled the headaches usually associated with creating merchant accounts at banks, enabling thousands of small businesses to accept payment on the go.
Around the payment processing, Square added tools like calendars, inventory management, payroll, and other services that small businesses need every day. The ecosystem of services made the core payment-processing product even more attractive. The company has also added lending to its offerings, using the data collected about merchants to determine their creditworthiness.
As much as Square's current products are enticing and driving growth, it's the next generation of products that should really excite investors' interest in owning this stock for another decade.
Where Square is going
The Square Card was recently launched. This credit card lets merchants use their incoming cash immediately to spend for business activities. It isn't a game-changer for Square's bottom line, but the goal is to keep merchant customers in the ecosystem and give them a way to use Square for spending, not just receiving money.
In-app payments for developers will also expand Square's addressable market of customers. As companies large and small look for ways to engage with customers in multiple locations, being able to offer different solutions for one-site, mobile, and web- or app-based solutions will help Square continue its growth.
I would expect Square Capital to be a big growth driver for Square in the future as it learns how best to serve customers. Square has better (and faster) data on merchants than most lenders do, and can offer quick financing decisions. For companies looking for a short-term financing fix without the long, drawn-out process of working with a bank, Square may become a more attractive place to get financing.
I think Square has a real chance to upend the payment industry with the Square Cash app. It acts as a mobile money transfer solution for Square and can replace credit cards and wallets in the right circumstances. As we move to a more cashless world, I think solutions like Square Cash could begin acting more like a bank account for consumers who only carry their phones with them, rather than a wallet. The service may not have a big impact on operations right now, but in a cashless world, Square Cash could be a key cog in the company's growth. It could drive Square from primarily interacting with business transactions to being a toll for all types of financial transactions.
Optionality is Square's advantage
Square is building out a core business as a payment processor that it can attach services to that will be attractive to merchants. This gives the company a lot of choices for where to take the business in the future, from expanding current markets to new markets where it doesn't have a large presence like retail, restaurants, and app purchases.
Where I really think the company has a unique position is the ability to push into the consumer market with offerings like Square Cash. What other company that started as a merchant processor is an entity that consumers actually want to build a relationship with?
If Square continues to expand its addressable market and bolts on services, this could be a great stock long term. I have an outperform call on My CAPS and I think Square will outperform the market as it becomes a bigger and bigger part of our lives.