Square Epiphany

Yesterday I grabbed tea with a friend after lunch at cafe A, and paid with credit card. The cafe uses iPad with Square and it has a loyalty program where 10 purchases get you a free drink. It ties my credit card with my account (cell phone number), so I automatically get the loyalty point by using that credit card, without having to do anything else. If I pay with cash, I would enter my cell phone number to get the loyalty point.

Later in the afternoon, we went to cafe B. Lo and behold, they have a spanking new Square + built-in credit card terminal. I again used my credit card to pay, and to my surprise, I got a loyalty point with cafe B, automatically. I didn’t even know they had a loyalty program! Needless to say, I was very impressed.

After thinking about it more, I came to realize how good of a situation Square has gotten itself into. They are at the point where they have all the menu item data, sales data, and customer data. I am pretty certain the next major feature they will push is electronic ordering (already part of Caviar, but only for delivery / pickup, not for dine in), where individual stores don’t have the resource to implement, and Square is in the perfect position to offer that. Imagine you go to a restaurant you frequent, and can just sit down and order right away. A perfect solution for cafes and restaurants to save money on man power and a perfect hook to get Square app into consumers’ phones!

Now, if Square is able to make their Cash app popular and become part of their users’ daily lives (use it to pay at the terminals, or even at the tables), they will truly become a cash hoarder. With how successful they have entrenched themselves with the cafes and restaurants so far, I think we will start to see that in the not too distant future.

The question now is how to benefit from this realization. SQ is 6.7% of my portfolio (#6), and is relatively expensive at “forward” P/S of 16 while growing at 47% in the latest quarter. I feel they can be at least the size of PayPal, so about 5 times the current market cap. I plan to increase my allocation to 8%, however, stock is one of the most expensive stocks in Saul universe, and same with all stocks, not without risk. So I would recommend new buyers to nibble at first.

Remember you saw it here on Saul’s board first :slight_smile:


I had a nice example of Square when I went to the bird food store recently. I couldn’t remember the exact name of one of the mixes I use, so they asked my name and looked up my purchase history and clarified which particular mix I had a history of using. Plus, they have a long term program of giving discounts to Master Gardeners, but naturally I never remember to bring my wife’s card … but now it is in the system so I get the discount automatically.

Also, I made a reservation at a restaurant recently and after I had given my name, the asked if it was still the same phone number.


How easy would it be for a competitor to do the same? I’m thinking Visa, Mastercard, Discover, or American Express, or Synchrony would find it easiest, but it could also be a company like Shopify or Verisign or some brand new company.

It’s not as easy as it seems for companies like Visa, Master. They rely on merchant account platforms (like First Data, Heartland, Chase Paymentech), who in turn rely on merchant account brokers / agents to sell to businesses. Visa / Master do not deal with agents that do the selling, directly.

Most of these agents are tied with one platform, and are just used to selling traditional credit card terminals and accounts to ecommerce companies. As it is right now, Square is in more direct competition with the merchant account platforms.

I did a bit of research, First Data purchased a company called Clover Network back in 2012, who is a competitor of Square. I assume it’s to respond to Square’s threat. However, I feel Square is just dominating, as I think not one of us have heard of Clover Network, unless you are in the business. As Square scales and develops its suite of apps and services, it will start to threaten Visa / Master.

However, it’s hard to Visa / Master to react. It will take a long time for Visa / Master to develop its own sales network, and if they do that, they are competing with their existing customers, a pretty classic dilemma for the old guards. Or Visa / Master can attempt to develop solutions and sell through the merchant account platforms, who in turn tries to push the agents to sell them. You can see how big of a headache and inefficiency that would be, as it’s a much more indirect relationship.

Now, not one of the merchant account platforms have products that are as feature-rich as Square, so naturally agents want to sell Square’s solutions as they have better products to sell and generate more profit (this is my assumption now, I will confirm with my friend in the industry). So it just snowballs as Square grows.

Square is years ahead in terms of the technology and the network it has built. Given the above, I think it’s super hard for other companies to compete.


I spent a few months in the States earlier this year, visiting family. I’d been in California for awhile and my daughter stopped at a donut shop. I noticed a Square POS and realized that it was just the first I had seen. A few days later I was off to Oregon. On a day where everyone was busy, I went to a small mall and walked into about 10 shops, looking for POS machines. On a couple of other days I made a point of walking into shops in the old downtown area and other malls of various sizes.

The predominant POS machines were Verifone, by a large margin. There were a few Clover (which I thought were a Bank of America product). I think Square was in the 10% to 15% range. This was kind of a work-in-process, I didn’t have a methodology. Of course, the larger franchise or chain stores did not use Square. It was donut shops, nail salons, a few restaurants, flower shop, juice bar, children’s clothes boutique, etc.

I think a few shop keepers were suspicious when I idled up to the counter and perused the payment system :). I learned that the owners of these small shops routinely receive visits from POS vendors. Very competitive, it seems. I then began to notice “Square” decals on windows/doors of some establishments. In many stores there was only a clerk on duty, so not much feedback about features, payment time, inventory, etc.

Didn’t start this until the last few days of the trip. You fellow Square shareholders have homework now. Walk your local businesses and check those POS machines! And take better notes than I did.



Actually sq does have competition from Clover… been seeing quite a lot of merchants using it in Florida… how much meaningful competition I don’t know though. The people I have spoken to about it seem happy with the system.


Actually sq does have competition from Clover… been seeing quite a lot of merchants using it in Florida… how much meaningful competition I don’t know though. The people I have spoken to about it seem happy with the system.

Seeing the same near me in Maryland. Sushi place, coffee/sandwich shop, bowling alley - all using Clover. Talked to the owners of the first two and they both love theirs. Talked to an employee at the bowling alley and he called it a square (it isn’t) and they love it too.

Perhaps FDC has more active sales team here.


1 Like

Some info on clover. I never knew its part of first data( I detest this Company) and after that I stopped reading. Having dealt with them for years, their customer service is the pits as also stated by this review.



Square has a lot of competition from some good companies in the payment processing arena. I think it is a mistake to underestimate them. As some have mentioned, there is First Data which runs the Clover platform:

Clover is First Data’s comprehensive, cloud-based point-of-sale (POS) payment platform. One of the advantages to a system like Clover is that it is open-architecture, meaning third-party developers can write apps that can be used on the system. These apps allow employers to perform tasks such as integrating employee schedules or payroll with Clover or exporting payments data to accounting software. These apps not only benefit First Data directly through revenue-sharing agreements, but also indirectly help First Data retain customers that become reliant on Clover to run their businesses.

First Data now has 400,000 Clover units installed, excluding Clover Go, a dongle that can be plugged into a smartphone and used as a POS terminal. Including Clover Go, there are 750,000 active Clover stations. First Data is processing about $50 billion of payment volume annualized through Clover, a whopping 50% increase year over year.

From https://www.fool.com/investing/2018/02/23/3-big-takeaways-fr…

Have not had a chance to look over First Data’s first quarter yet (they just reported today), but the numbers seem to have gotten the market excited as FDC was up more than 18% today. Last summer, First Data made some interesting acquisitions which really boosted their POS capabilities: https://www.fool.com/investing/2017/07/22/first-datas-750-mi… I wouldn’t invest in First Data because they have so much debt, their balance sheet is a mess. But for SQ, the competition from Clover is real.

There’s also Global Payments, which I really like and have a small position in: https://www.fool.com/investing/2018/02/21/3-ways-global-paym…

Then there’s the newly-formed Worldpay, which was formed as a merger between Vantiv and the old Worldpay: https://www.fool.com/investing/2018/03/27/questions-remain-b… Still not sure about this one, but it could be a force to be reckoned with.

Anyway, what separates SQ – IMHO – is not its payment processing capabilities, but its other ventures which embeds its ecosystem into a business. I’m talking about Square Capital, Caviar, Square for Retail, Cash App, it’s application for a bank charter, etc. This type of stuff: https://www.fool.com/investing/2018/03/04/square-subscribes-… Square also seems to have an uncanny way of keeping ahead of the competition in the payment processing field, but that seems more a matter of months, certainly not years.

At the end of the day, Square is still all about empowering small businesses. It started as a way to enable small businesses to take card payments with just a simple dongle attached to a smartphone. That was an innovative gimmick, but it was easily copied. Fortunately, the company has expanded and innovated in many different exciting ways, but it’s still all about empowering small businesses. If that remains its goal, I believe it will continue to excel, but not because it has the best payment processing capabilities. That’s a service easily commoditized. And I don’t think one should underestimate the competition.

Long GPN, SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx


Square has a lot of competition from some good companies in the payment processing arena. I think it is a mistake to underestimate them.

Very good information. I love this board. When I get a chance, I will spend more time learning more about Square’s competition. Regardless, I am amazed at how fast Square is able to come up with new products with fast customer adoption.

I think we have to be careful who we consider as potential competitors given how fast SQ is moving.
It ain’t just Paypal or First Data now but GrubHub, LendingTree, and Wix and Shopify etc maybe even Amazon.