Square (NYSE:SQ) is disrupting the financial system with its end-to-end software suite for merchants, and its Cash App mobile wallet for consumers. In recent years, the company has benefited as online shopping and digital payments have become more popular, but Square still has plenty of room for growth.

In this episode of Backstage Pass, which aired on Sept. 14, 2021, Motley Fool contributor Brian Withers discusses Square's business, focusing on potential tailwinds from e-commerce and the impact of the Afterpay acquisition.

 

Brian Withers: You may be wondering why Square is showing up on an e-commerce list. Well, a good bit of their business is fueled by e-commerce, and let me explain what it is. You have to dig behind the scenes to get at it. But I think I will do a decent job.

This is Square's seller ecosystem. It's a number of different software tools, financial payment processing services, and digital integrations that fuel the seller ecosystem. And you can see all of the different things that Square provide sellers. If I do the the magic click, look at all of these, that of those which have -- the ones in boxes are the ones that have a bent on e-commerce as well. Obviously, payments, you can do it in person or online. They have programs for customers, whether it's marketing, gift cards, things like that, that's obviously e-commerce.

They have Square Online Store. They have stuff similar to Wix and Shopify, where they have modules, that if you're already using Square in your brick-and-mortar place of business, you can extend that e-commerce and have a seamless integration between your online store and your brick-and-mortar business.

You see Square here for retail, Square for restaurants that enables delivery and order online. I'm not going to go through all of these, but you can see. Down on the bottom, I picked up some pieces from, I think their most recent earnings call. I'm sorry, this is their 10-K. They said "We offer software including online software such as Square Online and invoices and other software products." Certainly focused online there. Then they talked about integration of online and offline.

Then this is the interesting part here for me, with software and integrated payments have been the fastest-growing products in the seller ecosystem. There were stories of a lot of sellers who were having trouble. Their brick-and-mortar places were closed and they opened up new businesses. They opened up an online business for the first time using Square's tools. There is also tremendous developer support. It integrates with not only its own website making services. It interacts with a number of the big guys here, not Shopify, but some [laughs] of the other ones. Certainly integrates with third-party apps, whether it's point-of-sale, user delivery, and marketing. Then just these payments. You can see these different businesses that accept payments, and things like Bill's Coffeehouse could certainly offer a order online, pickup in-store service or order ahead like Starbucks does.

Just a couple of quotes from the management call. GPV, gross payment volume, from online channels has continued to remain strong, growing nearly 50% in the second quarter. Then they talk again about the seamless in-store and online experience. Then card-not-present. Think about your credit card. If it's not present, you're doing an online purchase or over the store, up 41% and up 28% on a two-year basis. Square's e-commerce capabilities and its platform are helping to fuel growth and helping to bring value to its many, many customers. Jose, glad to have you back. [laughs]

Jose Najarro: Yeah. Random power outage. [laughs]

Brian Withers: It went out, oh, no. [laughs] I just finished up with Square. Then Trevor, you had a question on Square?

Trevor Jennewine: Yeah, I did. Yanis ,we are going to get to your question about our highest conviction [stocks] right after Jose finishes this last one. Brian, in terms of Square, how do you think the Afterpay acquisition affects the business going forward? Do you think this is a positive or negative?

Brian Withers: I think it's generally positive. Some folks may think of Afterpay as a risky bet with this buy now, pay later business and potentially defaulting on some of their contracts with customers. But Afterpay wouldn't have gotten to be where it is if a third of its buy now, pay later situations ended up in default. I think it's certainly a benefit here to merge these customer sets and help. Square put together a really nice presentation how Afterpay is going to help both on the seller ecosystem side and the cash app ecosystem side to help both of their key businesses, so I'm excited about it going forward.

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