What happened

Shares of Square (NYSE:SQ), the diversified fintech company, were climbing Wednesday -- apparently assisted by the market debut of Toast (NYSE:TOST), a restaurant payments specialist that was surging on its IPO day, signaling a healthy appetite for digital payment stocks. Square also launched a new feature for its Cash App Wednesday.

As of 3:17 p.m. EDT, Square stock was up by 3.7%, while Toast had soared by 54% from its $40 IPO price.

A merchant with a Square POS system

Image source: Square.

So what

Square is a major competitor for Toast, and while Square has become much more than a small-business payments processor -- having branched into peer-to-peer payments, cryptocurrency, and small-business lending -- handling payments for small businesses like restaurants remains one of its core components.

Toast's market cap surged to $20 billion Wednesday, indicating that investors see a significant runway ahead for its business. The company provides restaurants with cloud-based software that handles everything from payments to communication between the front of the house and the back of the house and other restaurant operations. In its last four quarters, Toast processed $38 billion in gross payment volume, and it has reached $1.2 billion in revenue over the last four quarters.

Separately, Square said it had launched Cash App Pay, which enables merchants to accept payments from Cash App with a QR code. Credit Suisse also said that the company was beta-testing a new "buy now, pay later" (BNPL) service, following its $29 billion acquisition of Afterpay weeks ago.

Now what

The interest in Toast as well Square's move into BNPL and merchant payments through Cash App show that there is plenty of room for growth in the digital payments space. Toast valued the global restaurant business at $2.6 trillion, and that is only one portion of the market that Square is aggressively going after. As fintech companies further disrupt traditional banking, there's still a lot of room for Square -- and its share price -- to grow.

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