Square Intent on Using ‘Ecosystem’ to Fend Off Competitors

Get used to a new term in fintech: "ecosystem." At Square Inc. , "ecosystem" means a rapidly expanding menu of products and services that encourages its seller-customers to use more Square products and services. Together, CEO Jack Dorsey and CFO Amrita Ahuja used the word “ecosystem” 27 times during the company’s earnings call yesterday. “This is our strongest competitive differentiator,” Dorsey said of the ecosystem. “It not only benefits our customers, wholesales and, increasingly, individuals, with the Cash App , but also benefits our internal teams. For our internal teams, it allows us to move a whole lot faster.” Square reported earnings per share of $0.11 for the first quarter on revenue of $489 million, a year-over-year increase of 59.3%. For example, he said because Square built its e-commerce API, it was able to quickly build Virtual Terminal to scale. He said because the company had built the Cash Card product for individual consumers, it was able to build the Square Card product for sellers. Dorsey touted the re-launch of Square for Retail, this time with an applet model he said will allow the company to add on features like Invoices, originally developed for Square Point of Sale. “Generally, we’re going to continue to invest into this ecosystem,” he said. “We do think it sets us apart from all of our peers and competitors in the industry, allows us to move faster and faster every single day.” The Square Online Store, also launched last quarter. The product allows for automatic syncing of both online and in-person data related to items, orders, inventory, and prices. "The biggest underlying trend here is that we are seeing sellers all over want to optimize their sales for anywhere their customers are, so, that is in-person, that is online, and also within mobile apps," Dorsey said. "Our strategy is to make sure that feels very fluid and they don’t really have to think about where their customers are coming from, which puts a lot of the emphasis on how the dashboard works and consolidates everything, and how we sync data across all those channels." Ahuja said that more than 50% of larger sellers, defined as those that generate more than $125,000 in annualized gross payment volume, use two or more Square products. She said Square is continuing to build out its seller ecosystem and pointed to the launch of Square Invoices as a standalone app as a prime example of the company's investment in scaling. Square has also launched an "ecosystem marketing campaign" that Ahuja said is reaching 7 million small- and medium-sized businesses across the U.S., "focused on expanding awareness of the full breadth and ecosystem of products." The company saw gross payment volume increase 31% year-over-year to $22.6 billion in the first quarter of 2019, although this was down from the $23 billion reported last quarter. Dorsey acknowledged that Square is "definitely seeing competition on the edges." "We have a lot of firms out there that are making solutions around payments, around payroll, around delivery, around everything that we see -- P2P or whatnot," he said. "But again, I think it really comes back to this concept of ecosystem and how all these things tie together." P2P payments Cash App, the company’s P2P payments business, last quarter saw a YOY volume increase of 150%, although the company did not reveal the actual volume number. In December, the company reported 15 million monthly active users, which was up more than 100% year-over-year. Ahuja said Square continues to see "strong monthly active growth," but did not provide an updated user count. “Within our Cash App ecosystem, we're seeing powerful network effects at play,” Ahuja said. “We see strong growth in monthly active customers with Cash App consistently ranking as a top 20 overall app in the iOS app store, and we see daily utility in Cash App.” Asked about monetization of Cash App, Ahuja said Square's priority when it comes to the app is efficiently driving reach. "The hard part is the engagement, and our team is nailing that," she said. "So, as we launch more features, as we launch more services, as we grow daily utility, we believe monetization will follow." She also noted that what Square spends to acquire a monthly active user is "a fraction" of what traditional financial institutions spend, inclusive of ongoing P2P costs. In its first-quarter earnings report, PayPal said its social P2P platform, Venmo , had 40 million active users, which the company defined as those who made at least one transaction in the previous 12 months. Also see: Venmo Revenue Growth Exceeds Analysts’ Predictions for Q1 The company said Venmo processed $21 billion of payments in the first quarter, up from $12 billion the year before, and that it was on pace to generate $300 million of revenue to PayPal annually. Meanwhile, the payment volume growth rate across PayPal’s services slowed. Total volume was $161 billion in 1Q19, a 22% increase from the year before, but down from the 23% increase the previous quarter. PayPal expects to have 300 million active users across its properties by yearend.

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Square Intent on Using ‘Ecosystem’ to Fend Off Competitors

Spa Gone. Now Workers Too. LendingClub Joins Bay Area Exodus

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