In this video clip from "The Crypto Show" on Motley Fool Live, recorded on May 18, Fool.com contributors Travis Hoium and Jon Quast discuss Square's [now called Block (SQ -2.28%)] move into cryptocurrency and if the decision will be lucrative for the financial services company.
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Travis Hoium: What's interesting with Square is we don't really know what they're working on. We've talked a few times on this show about Solana (SOL -0.95%) Pay potentially being the infrastructure that the rails on which payments could move.
Instead, when you pay with your credit card at a grocery store, that money actually goes on your credit card, but then it goes through with the banks, credit card companies, and a company like Square or Toast (TOST -2.57%) and then the merchant actually only gets about 97% of what you spent there. If you're a grocery store, actually Visa (V -0.59%) is making more money on that transaction than the grocery store is [LAUGHTER] from a margin standpoint which is always insane.
Jon Quast: That's a good point.
Hoium: In something like Solana Pay, can cut those fees to basically zero. Now, you are still going to need something like a point-of-sale system. Toast and Square, PayPal (PYPL 0.34%), to a lesser extent. That interaction, the thing you're actually clicking buttons in and signing and adding a tip, that system is still valuable and they will still be charging for that.
I think when I look at Square's finances, I look more and more at the growing subscription business and not transaction business, that subscription business is going to be much higher margin. It's also much more sustainable long-term because it's what companies are building their businesses on top of.
They might change the rails though. That's the thing I think that Square Block is probably working on is they've talked a lot about Bitcoin (BTC -0.46%) and we'll see if Bitcoin is the right rails or if it's a different cryptocurrency. But, that would be what I would look at it, is can they say, hey, we're going to run on crypto X right now and our fee is going to go from 2.7% to merchants to 1.5%, but we as Square Block, are actually going to make more money because now we've cut the banks and the credit card companies out of the equation.
If that whole system runs simply enough and it's seamless to both the buyer and the seller, that could be really compelling. We're not there yet, but I think that's the argument for a company like Square Block working in this cryptocurrency space.
