2019 has been a big year of new products and features for Square (NYSE:SQ). The pace of product development has accelerated compared with previous years, and Square released 32 new elements to its ecosystem in 2019, according to Citi analyst Peter Christiansen.
But there's one product that stands above the rest as a potential game changer and significant source of revenue for the payments company. Introduced at the start of the year, the Square Card -- Square's debit card for merchants -- has gathered momentum among sellers and the attention of analysts. And while Square's subscription and services revenue is anchored by Cash App, Square Capital, Caviar, and Instant Deposit, the Square Card may be a catalyst for further growth in the segment as well as fueling growth in its main payment processing service.
A $100 million product
Analysts generally agree the Square Card is well on its way to becoming a $100 million product. Where they disagree is how long it will take for it to get there. Earlier this year, KeyBanc analyst Josh Beck said he thinks it'll bring in $100 million in annual revenue by 2022. But it could actually get there by next year, according to Raymond James analyst John Davis.
Square's subscription and services segment generated less than $600 million in revenue last year, so a $100 million product would provide a considerable boost to Square's high-margin revenue source.
That said, the Square Card will cannibalize Instant Deposit for sellers since sellers can access their funds immediately through the card instead of moving funds to their traditional bank account. That may be where the discrepancy between analysts comes in. The $100 million Davis expects might not all be incremental revenue.
Still, the Square Card will play an important role in growing revenue for the segment. Square Capital loan-origination growth is set to slow down following easy comparable periods in the first three quarters of this year. Additionally, Caviar is facing increased competition as a couple of major delivery services have seen a capital infusion this year.
Not just about the swipes
One of the key perks of the Square Card is that merchants are incentivized to shop at other merchants and vendors. Square offers a 2.75% rebate on all purchases made through a Square payments terminal. That makes it a marketing tool for Square on top of a financial tool for its merchants.
Square already gets most of its business through word of mouth. Even as it captures more large sellers, most of those sellers are coming into the Square ecosystem the same way smaller merchants do: They sign up on Square's website themselves. Only a small percentage of merchants work directly with a representative to determine how Square might benefit their business. Using the existing merchant base to advocate for the Square ecosystem only reinforces that marketing efficiency.
On top of a marketing tool, Square Card gives Square more data on where its merchants are spending and how their cash flow looks, and forces merchants to interact with the Square dashboard more often. That presents an opportunity for Square to sell more products to merchants or use that data to develop new products.
As a big contributor to Square's high-margin subscription and services segment, an organic marketing tool, and a data-gathering mechanism, Square Card is the company's most valuable new product so far this year.