Business Model

This article is about Square’s business model. We will first explain the fundamental elements of Square’s business model. We also provide information about Square customers, revenue sources, and critical cost elements. We then share Square’s Gross payments Volume (GPV) analysis for 2015. We then share Square’s 2015 Gross Payments Volume (GPV) analysis.

Critical Elements of Square Business Model

Square, Inc. (“SQ”) provides credit card processing and business services. It offers a free software app with low-cost hardware that turns mobile devices into powerful point-of-sale (POS) solutions. Merchants and sellers can accept card payments from anywhere with a mobile device. Square allows sellers to accept payments via EMV (Europay Mastercard and Visa) chip cards as well as the latest contactless payment methods (such as Apple Pay) that use near-field communications (NFC). For sellers to start Square, it takes just minutes for sellers to have no credit checks. Square accepts Visa, MasterCard, and Discover payment cards at the same rate.

Square is a payment service provider. Square facilitates payment transactions on behalf of the seller with banks and payment card networks. Sellers can deal with simple rules and regulations of the payment industry. Square acts as the merchant of record for its sellers. Square is at risk of being charged back or subject to refunds.

Square Products and Services

The following categories are used to organize Square products and services:

Payments and POS Services. These hardware and software solutions allow you to take payments in person or online and analyze your business information.

Financial Services. These services provide funds for sellers to grow and run their businesses.

Marketing Services. These services help sellers reach customers and increase sales.

Square Payments offers POS services and business opportunities such as:

Square Readers. Square has a variety of readers that can be used to accept credit cards securely. They all work with the Square Register mobile app and form a simple solution for POS.

Square Magstripe reader plugs into a standard headset jack on a mobile device. It allows sellers to take payments by simply swiping a buyer’s payment card.

Square Reader for EMV Chip Cards can also be plugged into the standard headset port of a smartphone. This allows sellers to accept payment by dipping the EMV chip or swiping on the stripe.

Square Reader to accept EMV Chip Cards. NFC wirelessly connects to mobile devices. It allows sellers to accept contactless payments via NFC by tapping on the buyer’s smartphone. This allows sellers to accept payments via Apple Pay, Android Pay, and other mobile wallets.

Square Stand turns an iPad into a complete POS terminal. It has an integrated magnetic stripe reader and can be connected to the Square Reader for EMV chips cards and NFC. It can also be connected to peripheral devices like barcode scanners or receipt printers.

Square Register app. This is a free POS application for iOS and Android. It allows sellers to accept payments even without an internet connection. It can send receipts by email or text message and collect customer feedback via digital receipts. It can track inventory and send sales reports by email or email. It can adjust taxes, tipping, and discounts. It can accept cash, checks, gift cards, and credit and debit card payments.

Square Analytics. All analytics can be accessed through Square Dashboard on They provide quick and easy access to information that helps sellers understand the performance of their business.

Square App Marketplace. It allows sellers to integrate third-party apps with Square seamlessly.

Square Invoices. Sellers can create digital invoices and securely collect payments with Square Invoices.

Square gift cards. Square gift cards allow sellers to offer, redeem and track gift cards through Square Register.

Online Store. Sellers also have the option to create an online store using Square Store or integrate with Weebly and Bigcommerce.

Employee Management. This is a paid upgrade for Square Register that unlocks advanced features often required by large, multi-location companies. It allows sellers to manage multiple stores using one account. They can also view detailed sales reports and take action on them. Device, employee, or location can filter these reports.

Square Appointments. This is an online appointment scheduling software. It allows sellers to accept and schedule appointments, manage staff calendars, organize client information, and view the appointment history.

Square cash. It’s a quick and easy way to send or receive money electronically. You can open a Square Cash account for individuals or businesses using a debit card, an email address, or a telephone number.

Square Financial Services offers the following:

Square Capital. Square Capital provides merchant cash advances ( MCAs ) to pre-qualified vendors. Square offers sellers an advance based on their payment history. Sellers can use the funds to buy inventory and equipment or open new locations. Sellers will make Square payments as a fixed percentage from daily card sales up to a certain amount.

Square Payroll. Square payroll is an efficient payroll service for sellers that caters to hourly workers. Square Register can automatically track hours worked.

Offerings of Square Marketing Services include:

Square Customer Engagement. Square customer engagement software allows sellers to engage with customers and promote their products through Email Marketing. Square Register allows buyers to opt-in for a digital receipt. They can then contact the seller directly about their experience using the receipt. Square automatically creates customer lists for all those who opt-in. It organizes them into different categories like loyal, casual, or lapsed. The seller can create announcements, promotions, or invitations for different buyers.

Caviar. Caviar allows you to order food delivery from restaurants. Caviar handles the delivery logistics, making it simple for restaurants to reach new customers without extra overhead.

Square Customers

Square targets sellers who have difficulties with traditional payment card acceptance. Low acceptance rates, expensive hardware and software, fragmented and difficult-to-use options, and opaque pricing are some of the problems sellers face when using traditional payment processors.

Square offers the following benefits to sellers through its solutions; simple, easy, inclusive signing-up; affordability; transparency pricing; quick access to funds; ability to take payments anywhere and anytime

Small businesses make up the majority of Square sellers. According to the U.S. Small Business Administration, March 2014. the report, there are thirty million small businesses in the U.S. More than two million Square customers currently use Square payment solutions. Below are some examples of business types Square serves:

Food & Beverages: Bakery, Coffee shop, and Restaurant.

Retail – Apparel, Grocery

Beauty professionals – Salon, Spa

Health & Fitness

Professional Services

Home & Repair Services

Non-profit Organizations

Leisure & Entertainment Events

Taxi Services

Square Revenue Sources

Square makes its revenues from these sources:

Transaction Revenue. Transaction revenue is the amount a seller pays to process payment transactions. Square charges a transaction charge of 2.75 percent of the total transaction amount to process card-present transactions and Square invoices payments. Square charges 3.5% plus $0.15 per transaction to process card-not-present transactions. Card details must be manually entered. Square offers large sellers custom pricing.

Starbucks Transaction Revenue. Starbucks transaction revenues are fees that Starbucks pays to process payment transactions. Square and Starbucks signed a deal in the third quarter of 2012 to process card transactions at all Starbucks-owned locations in the United States. Starbucks announced in October 2015 that it would switch to another payment processor and discontinue using Square payment processing services before the third quarter of 2016. In 2016, Starbucks’ transaction revenues will be significantly lower.

Software Revenue and Data Product Revenue. This revenue is primarily related to software offerings or revenue from Caviar and Square Capital food delivery services.

Software is a service that includes Square Appointments, Square Customer Engagement, and Square Appointments. Square offers software to use for a fee.

Square Capital offers MCAs for a fixed amount of future receivables. Revenue is the total amount of future receivables and the cash advance.

Square charges Caviar food delivery companies a commission fee based on total food order value. Square charges customers a fixed delivery fee for each transaction and a service charge based on the total order value.

Hardware Revenue. This includes Square Stand sales, Square Readers for EMV Chip Cards, and NFC and third-party peripherals. To provide a complete POS solution, third-party peripherals can include barcode scanners and receipt printers.

Square Cost Elements

source: the finance

Below are the essential costs of Square.

Cost Of Revenue. Costs of revenue consist of the following:

Transaction Fees. Transaction fees are interchange charges set by payment card networks and paid to card-issuing financial institutions; assessment fees paid by payment card networks, bank settlement fees, and fees paid by third-party payment processors.

Starbucks Transaction costs. Starbucks’ transaction costs are the same as overall transaction costs.

Software & Data Product Costs. Software and data product costs primarily consist of Caviar-related costs. These include third-party courier payments for delivery and equipment costs provided to sellers. Other software and data products’ cost of revenue primarily includes the allocation of third-party data center costs and depreciation. It also includes personnel-related and facility costs that support customer service.

Hardware Prices. Hardware costs include Square Stand, Square Readers, NFC readers, and other peripherals. Product costs include manufacturing-related overhead and personnel costs, certain royalties, packaging, and fulfillment costs.

Amortization for Acquired Technology. This cost includes the amortization of technologies that were acquired by way of acquisitions with the potential to generate revenue.

Operating expenses. These expenses include product development, sales, marketing, general and administration expenses, transaction losses, advance losses, amortization and impairment of intangible assets, and amortization of acquired customer assets. The largest component of product development and general or administrative expenses is personnel-related expenses. This includes salaries, bonuses, employee benefits costs, and share-based pay. A significant amount of marketing and sales expenses are related to paid advertising channels. This includes online, mobile, email, and direct mail. Other operating expenses include overhead costs associated with facilities, human resources, IT, and other fixed overhead.

Square Gross Pay Volume Analysis 2015


Gross payments Volume (GPV ) refers to the total dollar amount for all Square-processed card payments, minus refunds. It does not include card payments for Square Cash peer-to-peer payment service and Starbucks.

Square generated $35.6 billion GPV for the year 2015. Square processed $35.6 billion GPV in 2015, an increase of 50%.

Square 2015 Revenues and Profits, and Profit Margin

In 2015, Square earned $1.27 billion in total revenues. Square was the only one to generate these total revenues.

$1.05 Billion revenues, or 82.9%, of total revenue, are transaction revenues.

$142 million in revenue, 11.2% of the total as Starbucks transaction revenue.

$58 million revenue, 4.6% of total revenues. Software and data product revenue is also $46%.

$16 million in revenues, 1.3% of the total. This is the hardware revenue.

Eighty-nine million dollars was the cost of Square’s total revenue in 2015. This is a staggering $1.27 billion. This led to a gross profit of $370 million and a margin of 29.2%. Square’s operating expenses totaled $544 million. Square’s operating expenses were $544 million, resulting in an operating loss of $174 million and an operating margin of 13.8%. Square lost $180 million after interest and other non-operating earnings, expenses, and income taxes. The net margin was -14.2%.

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