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How Square Grew Into a $100 Billion Company in Just 11 Years

By Matthew Frankel, CFP® and Brian Withers – Sep 5, 2021 at 7:33AM

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The fintech giant went from being a niche payment processor to becoming a massive financial ecosystem.

In just over a decade, Square (SQ -0.38%) has grown from a niche manufacturer of payment processing hardware for smaller merchants into a $100 billion-plus financial ecosystem. In this Fool Live video clip, recorded on Aug. 23, Fool.com contributor Brian Withers discusses how Square got to its current point and what investors need to know about the business today.

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Brian Withers: Not surprisingly, Square you can see, we started the business in 2009 to enable businesses, sellers to accept credit card payments. It says this important capability was previously inaccessible to many businesses. Actually, my brother-in-law, this was something that he experienced. He described what the process was before Square. He's a board game designer and would often go to these shows and sell his board games, and somebody would come up and say, "Hey, I want to buy a board game," and of course he wants to sell his game. So he'd take their credit card. He had those little machines that run the imprint of the card on this three-part form which he had to buy and pay for. Then people would fill out their information, they usually put a phone number or something on there. Then he said that he would wait till he got home and put in all these payments, and sometimes the imprint didn't come through or for any given show on the weekend, he'd have a payment that didn't process. He gave out a game and didn't get the money.

Square started out with a little Square device that plugged into the headphone jack of the mobile device. You swiped it through and it immediately provided the seller with the credit card payment and the seller knew that the payment was going through. My brother-in-law described this as a life-changing technology for him in really making something that was kind of a big, big hassle to something that was not only timely, simple, but effective in that that he got his payment.

Square has grown up considerably since then. You can see the next thing. They realized that sellers needed a variety of solutions to thrive, and then they built on this seller ecosystem. Let me just dive down here now. Square seller ecosystem helps our sellers sell, run, and grow their business. I love this. We combine hardware, software, and financial services to create products and services that are cohesive, fast, self-serve, and elegant. Similar to the technology description I described of taking the payments, the seller ecosystem is built on that. You can think that they've just added stuff over time. You can see here this seller platform on the left, team management developer platform, business banking, customer relationship management. There's a number of different services over here.

In the year ending Dec. 31st, they processed $104 billion of seller gross payment volume and more than 2 billion car payments and 400 million payment cards. Square's ecosystem had 210 million buyer profiles and approximately 295 million items were listed on Square by sellers. They have built this business significantly, but they also have the Cash App business. It provides an ecosystem of financial products and services to help them manage their money. Let's go down a little bit. They talk a little bit about response to COVID and how that affected them because this is the year-end 2020 report. They talk about the customers. Our sellers represent a diverse range of industries, sizes ranging from sole proprietors to multilocation businesses.

I like this stat here. We are increasingly serving larger sellers, which we define sellers as more than 125,000 in annual GPV, gross payment volume. If you think about it, I had always thought Square was the small business seller. But 125,000 in annual sales, that's a pretty decent-size business. More and more they're serving those larger sellers, and it says GPV from larger sellers represented 60% in the fourth quarter of 2020 up from 56% the previous. Also they had no customer that accounted for greater than 5% of our total volume. Pretty nice diverse set of businesses and large and growing. You can see the GPV by industry. It's split out over a number of different industries, and here's the mix by seller size. This top one at about 30% is greater than $500K, and then this was just the 60% greater than $125K and 40% is a smaller size. You can see over time, over the last, this is 2014, 2015, 6-7 years, they've gradually decreased their dependence on the small seller, which is hopefully some of these small sellers have grown up to become bigger sellers.

The last piece I want to hit before I want to hand it over to Matt is the seller ecosystem consists of 30 distinct software, hardware, and financial services products. We'll list some of them here. Square Point of Sale, Appointments, Retail, Square for Restaurants. These are their software products. You also have Square Online that helps build websites and online stores, online checkout, invoices, virtual terminal. They also have things for managing small businesses. This is a scheduling software. They have contracts, loyalty cards, this dashboard that allows sellers to see their whole business. Payments, commerce. Certainly a point-of-sale reader, contactless and chips reader. These three are pretty broad in what they do. They help with managed payments, risk management, instant transfer, Square Card, Square Capital. Then on the Cash App side, you can store, send, and receive funds. You can use it for spending, you can use it for investing.

They also, in 2020, acquired Credit Karma Tax. So they have some tax preparation stuff. If you just think of Square as a payments platform, I think you're selling it short. That gives you a little view of the business, and there was even more that we didn't go through and I would encourage you to read through that. It's a great business 101 of the company.

Matthew Frankel, CFP owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.

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