Square warning

This, that I received from Seeking Alpha, looks like a long term negative game changer for Square:

Mastercard, Visa may face risk from Fed’s RTP plan in 5-7 years - Bernstein • 10:39 AM
The Fed’s plan to develop a real-time payments system, which is “functionally similar” to debit payments, may present some “very long-term” risks to Visa (V +1.6%) and Mastercard (MA +2.4%), for which U.S. debit accounts for ~15%-20% of their credit volumes, writes Bernstein’s Harshita Rawat in a note.
Risks are at least five to seven years out, Rawat writes.
The new system may also pose risks for Square’s (SQ -1%) instant deposits revenue and, to a “much smaller extent”, PayPal (PYPL +1.6%); instant deposit likely make up more than 15% of Square’s adjusted revenue and 0.5%-2% of PayPal’s revenue.
Also very long-term risk of RTP (real-time payments) "commoditizing person-to-person (P2P) payments.

Previously: Federal Reserve to develop real-time payment system (Aug. 5)

They are referring to this:

Federal Reserve to develop real-time payment system

Aug. 5, 2019 2:10 PM ET|By: Liz Kiesche, SA News Editor
The Federal Reserve Board will develop a new round-the-clock real-time payment and settlement service to support faster payments in the U.S.

Called FedNow Service, the new system is expected to be available in 2023 or 2024.

“The Federal Reserve believes faster payment services, which enable the near-instantaneous transfer of funds day and night, weekend and weekdays, have the potential to become widely used and to yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive payments,” the central bank said in a statement…


This is obviously not a current threat, but it seems a long term existential threat, and it’s hard to see Square rising much in the face of it. I thought you should be aware.



I see this announcement as a new significant player entering this growing space and thereby confirming the trend away from traditional banking. The additional competition is a negative to SQ in its largest market, but the signal for further growth of its TAM which would include the international market could also be construed positively. 5 years is a long way out and although I believe in the product development potential over these next years, SQ will be one for me to watch much more closely from here onwards


Hi Saul,

Disclosure: I have a small position in MA but no position in SQ or V.

This was a nice find, thank you for sharing. In looking for more information, I found the Federal Reserve press release:


“Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” said Federal Reserve Board Governor Lael Brainard. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”

The Board is now requesting comment on how the new service might be designed to most effectively support the full set of payment system stakeholders and the functioning of the broader U.S. payment system. The Board anticipates the FedNow Service will be available in 2023 or 2024.

To me the statement “FedNow will permit banks … to provide real-time payments to their customers” implies that FedNow will facilitate money transfers and not necessarily be a competitor to SQ, MA, or V.

Also, the fact that the Fed is seeking comment on “how the new service might be designed to most effectively support the full set of payment system stakeholders …” allows SQ, MA, and V an opportunity to provide input so that FedNow will augment or enhance, rather than replace, their offerings.

I agree this is not a current threat and may eventually be no threat. However, it is something to keep an eye on.

Just some thoughts.


PS. I love this board and thank you for all you’ve done to assist my investing education.



I think this seems like an initiative to create a common platform or a standard to facilitate digital payments. It will likely help SQ, VISA and others in the mobile payments industry to broaden their market, services and quality.

At least thats the way I am interpreting it.



I would agree with foolChandra. The primary benefit most people get from MA or V is that they buy something today, MA/V pays the merchant today, but I pay for it later. Maybe it impacts Square more than it impacts the credit card companies. In fact, it might help them.

To me FedNow might be more about the perceived risk of crypto, at least in its ability to transfer money very rapidly between parties, compared the 2-3 cays with the current system. Imagine I can transfer money from my Vanguard money market to my Capital One checking account in a manner of minutes rather than 2-3 days. So, the same currency we have today with the rapid transmission of funds of the crypto world.

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From a Washington Post article
“The announcement could pit the Fed against some of the country’s biggest banks, including Bank of America and JPMorgan Chase, who have already developed rival technology and fear that Silicon Valley companies could use the Fed system to push their way further into the banking world”

Truth is that the US system of cheques is so outdated that Europe never used it, went straight from cash to electronic wires. Now, any wires have to be credited to my account within 4 hours even if sent outside of banking hours.

I think changing the US system could actually help the widespread adoption of the SQ-s an alikes


I agree with bjurasz. This development may be in response to crypto currency’s ability to move money with very low friction. I also doubt that fed will open such a system for general public consumption. I would think once developed, banks would be able to utilize such system for instant transfer. Though I am still not entirely clear on how it would impact card merchants and companies like SQ and Paypal. Would they also be able to use this ability to expand their TAM and have a positive impact?

  • Ruhaan (thinking out loud)
    Long SQ
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This is obviously not a current threat, but it seems a long term existential threat, and it’s hard to see Square rising much in the face of it. I thought you should be aware.


I would welcome the Fed competing against Square. It would be like the Postal Service competing against Fed Ex. Just think about it. The Fed would be like an aircraft carrier and Square would be like a sleek power boat. I just don’t see where the competition would be.



Hey Saul, from reading the FAQ on this proposal, I get the impression that this would impact the ACH and the wire system, not the credit card system.

People use their credit cards to create a multi-day float on when they must pay the bill as well as any rewards system. Having instant transfer payments 24 hours a day from a bank account may not impact that system (people could already pay with their debit card if they wanted to pay for it now).


Lots to unpack in this link but…

  1. Will the Federal Reserve be able to recover costs of the FedNow Service over time?
    In keeping with the requirements of the Monetary Control Act (MCA) and longstanding
    principles for the pricing of Federal Reserve services, the Board would fully expect any new
    service to achieve full recovery of costs over the long run. In reaching this conclusion, the Board
    considered the MCA’s cost recovery requirement alongside its requirement that the Federal
    Reserve “give due regard to competitive factors and the provision of an adequate level of such
    services nationwide.” For any new service, the Board would follow a similar approach to longrun
    cost recovery as that applied to the Federal Reserve’s FedACH? service, the last new retail
    payment service developed by the Federal Reserve.

  1. Who will be eligible to participate in the FedNow Service?
    As with current Reserve Bank services, the FedNow Service will be available to banks eligible to
    hold accounts at the Reserve Banks under applicable federal statutes and Federal Reserve rules,
    policies, and procedures. (As used elsewhere in these FAQs, “banks” refers here to any type of
    depository institution, including commercial banks, savings banks, savings and loan associations,
    and credit unions.) Participating banks will be able to designate a service provider or agent to
    submit or receive payment instructions on their behalf. Participating banks will also be able to
    settle payments in the account of a correspondent bank, if they choose to do so.

Certainly gives the impression that such a service will also not be free.


Hawkwin is correct.

The Fed is expanding a back-of-the-house system that relates primarily to bank to bank transfers, and that already exists, just in an inferior form. The current system is slow, doesn’t work on weekends, is out of date, etc. The Fed aims to speed up bank to bank transfers—-e.g., your wire from one account to another should not take 3 or 5 days, or your payment to your utility provider should be reflected more quickly. Banks oppose it because they have spent $$ on building out their own infrastructure (called “Clearing House Payments”).

Improving the infrastructure on which SQ runs would seem to be a net positive.


I would welcome the Fed competing against Square. It would be like the Postal Service competing against Fed Ex. Just think about it. The Fed would be like an aircraft carrier and Square would be like a sleek power boat. I just don’t see where the competition would be.

I think a possible answer is inside your question.
An aircraft carrier can carry a huge volume of stuff compared to a power boat.

Not sure if this matters or not.


Sounds to me payments to credit card vendors, or Square payments by credit card, or transfers from say a Roth IRA to your normal bank will clear immediately - and maybe at less frictional cost.

This might be the Fed’s way of trying to contain Bitcoin payments hurting or destroying businesses built on rented money, i.e., the Fed’s intention is not to be a competitor, but, an abettor to Square, Visa, Big Banking, etc.

Hard to say what the intent is here, but that’s the drift I get from my first read.

I am hoping someone with deeper knowledge of the Fed’s machinations will explain this in detail.

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I have read quite a bit of press on this as well as statements from the fed. I don’t think this will have much, if any impact on square. This should make it easier for me to transfer money from my Schwab account to my checking account. Currently a payment to myself from Schwab takes 24 hours. This should shorten the time to minutes.

While details are few, I think this has more to do with internal debits and credits within the fed banking system and its members than daily consumer transactions.



I just wanted to add to this thread that Mastercard is paying $3.19 billion to aquire the Danish company Nets which among other technologies includes instant payment services:


So the instant payment technology must at least be a good thing for credit card companies. If square cannot offer the same type of service cheaply, I would think that would harm Square.


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This has to do with clearing money between banks, as I understand it. When I transfer funds from one bank to another, the transaction must clear through the fed. One bank’s accounts is debited while another’s is credited. However, the amount of the transaction is immediately subtracted from one account and may not show up for 24 hours in the other account. Because of this the bank gets to use your money for several hours and probably over night. With checks and transfers clearing instantaneously, the bank will no longer have this float. I don’t see how this could significantly impact square.



We should also remember that it is the government that’s going to do this. In my experience most government built things aren’t best of show.

I agree that it could be a challenge for SQ but public companies are much more nimble about change than the government is. I’ll watch the developments but for now my money will stay invested in SQ.



There are other countries that are doing something similar or have something in place. Don’t underestimate the impact of this.

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Ok as a non-American based in Asia I have 2 points of view on this…

  1. I don’t see this as a threat to Square or any processors etc for a couple of reasons:-
    1.1) I think this is aimed at the underlying banking system interbank settlements level rather than merchant end processing
    1.2) Isn’t there a law that prevents Fed from competing with pre-existing private enterprise (in the same sense that IRS couldn’t introduce a free tax simplification software that is desperately needed because it would mean that it directly competes with private enterprise - in this case turbotax).

  2. I think before this event even comes about we will see technology disruptions. I’m on the way back from China where effectively I have seen the potential future disruption. In mainline retailers (e.g. chain supermarkets not mom & pop shops), we have moved on from where Square and PayPal’s izettle and Wirecard plus all other POS terminal type processing devices and systems operate as well as beyond digital wallet based systems like apple wallet or phone wallets etc to something that bypasses everything. In China AliPay has introduced facial recognition checkouts at the physical stores. You pay with your face using AI facial recognition camera tech together with a pin number. No need for a card or a smart phone or anything else. This even leap frogs Tencent’s Wechat pay which is the dominant cashless payment wallet system in China.

If this takes off worldwide unless Square in combination its cash app establishes the tech first could mean total disruption to everything from POS systems to Apple Wallet to Visa/MC/Amex to even traditional banking. Forget about the Fed in that case that is tech disruption that can happen very fast (it has only started to happened in China in the last year or so).

There were a lot of eye opening moments for me on this trip to China which I might comment on another time when get a chance to collect my thoughts but this to me was the most disruptive tech that has reached every day deployment. The only other comment I would make with regards to China is that having been to both Beijing and Shanghai in the last 3 months is that both cities are effectively now first world/developed world level. Anyone in the West who is working under any other assumption is misinformed with what is going on now. In these 2 cities at least; infrastructure (metro & high speed rail), education (multilingual/tech startups), wealth ($$$), living standards (including car and property ownership), mobility (career progression and geographic mobility), progress and opportunity matches the West.

Besides Tencent and AliBaba, my one investment tip from this trip although I’m not sure how to play it is Diabetes. Obesity levels in China now seem to match or exceed the US. Every child I saw over the age of 3-5 was overweight or obese and that was the case out in Tier 4 cities and countryside in Anhui as well as in Shanghai thanks to the Chinese relationship with food that borders on addiction, a convenience culture that makes America look like a Mormon settlement and past times that involve online gaming and online video streaming and zero energy expenditure. (Denny if you still hold them then Novo might still have far to go!)



(Denny if you still hold them then Novo might still have far to go!)

Healthcare cannot compete with Saul style stocks

MDV vs. NVO http://softwaretimes.com/pics/nvo-mdb-0812-2019.gif

I also abandoned healthcare because of the efforts by government(s) to control prices, as noble as it may sound it’s an economic killer.

Denny Schlesinger


I believe JP Morgan Chase dominates the bank to bank wire transfer mark at this time. I haven’t researched it, but my buddy works operations IT for that system. He claimed they had 75% of the market as part of his explanation for job stress when the system goes down. He’s not typically one to exaggerate. Not sure if that is SWIFT or not.

I agree this seems to refer to the back end. But it’s the Fed. If they feel the need to control it, they will. The mafia is rarely challenged effectively.