Even as Apple's (NASDAQ:AAPL) roll out of its new mobile payment service is proceeding slowly (but surely), freshly public mobile payment processor Square (NYSE:SQ) is hopping on board. This comes almost exactly a year after Square said it would soon support Apple Pay.
While many have perceived Square and Apple Pay as competitors since both play in the mobile payment space, that characterization has never really been appropriate. Square essentially makes the terminal that processes the payment while Apple Pay delivers the card data. So both companies cooperating is mutually beneficial.
Square has now announced its new NFC contactless reader that also supports the new wave of chip cards that are now sweeping the market. The new reader will accept all NFC payments, including Apple Pay. Square has priced the contactless and chip reader at $49 and is now accepting preorders.
Why this matters for Square
Square's goal has always been to allow small and local sellers and merchants to accept a wide range of electronic payments. As such, it needs to support all of the latest innovations that are coming out of the mobile payments space, including Apple Pay and similar NFC-based payment solutions.
The $49 price tag will help offset some of Square's development costs as well. The company has long given away its most basic magnetic card readers for free, but its hardware sales are unprofitable. For instance, hardware gross margin last quarter was negative 87%, and that's the best it's ever been. But absorbing these losses has always been a way to gain traction and grow payments volume, where Square keeps a hair over 1% of all payments processed after processing expenses.
Meanwhile, card networks and issuing banks are pushing chip cards very aggressively, touting greater security and benefits from the new technology. Starting on Oct. 1, 2015, there was a "liability shift" where if a merchant swiped a card instead of inserting the chip, the liability for some types of fraud shifts to the merchant. This was done to encourage chip adoption since these types of transactions are more secure.
Merchants will want to make the jump in order to protect themselves from this liability shift, and Square needs to support them in doing so, lest they jump to another payments platform. This move kills two birds with one stone.
Why this matters for Apple
Thus far, Apple has focused on partnering with large merchants and retailers, since those partnerships can help it expand Apple Pay's footprint much faster. While Apple still has a long way to go before Apple Pay is broadly supported, it's also left a wide opening in terms of smaller merchants supporting the new service. That's exactly where Square comes in since its core client base is exactly small merchants.
Apple continues to make progress with Apple Pay availability, and every little bit helps.
Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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