Is Square Changing Its Stripes? APIs Target Stripe and Braintree Approach to ISVs

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In a wide-ranging presentation to investors and other audience members at the Jefferies 2016 West Coast Payments Conference on Tuesday (Sept. 27), Square CFO Sarah Friar commented on the company’s growth plans and future opportunities for expansion.

Her remarks make one thing clear: Square sees its reach as expanding far beyond accepting payments with a little white card reader. And it sees working with other software providers as one way to provide its products and services to more merchants.

One strategy the company is using to expand is its development of APIs, which allow developers to build applications that connect to Square’s technology — an approach that mirrors that of other providers such as Stripe and Braintree.

“We’ve spent a lot of time in the last couple of years going back in and making sure we’ve built our technology in a highly modular way,” Friar said in her presentation.

This strategy helps Square enter verticals where perhaps the company is not planning to build a customized solution of its own. Developers who work with that particular type of business might be interested in building on top of Square’s technology, she said.

It also helps the company expand into larger businesses beyond its traditional micro-business base – organizations that may already have point-of-sale systems tailored to their business and do not want to switch.

“They like that UI some of their buyers are seeing, but they don’t want to rip and replace the whole point of sale system. It will take a long time and it’s a big decision to do that. So that’s a way for us to make our first foray into someone’s business that might be at a bigger scale,” Friar said.

In an example of this strategy at work, in August, Square announced that it had integrated its systems with two POS providers, TouchBistro and Vend, enabling users of their POS systems to use Square’s services in addition to the tools they are familiar with.

“It makes us much more available for bigger and bigger businesses, and it puts more feet on the street because now you’ve got developers selling your product, you’ve got third parties selling your product. These are good ways to grow the business over the long run,” Friar said of working with other providers.

Rick Oglesby, a Double Diamond Group partner and principal of AZ Payments Group, sees logic in Square’s approach.

“Square’s been doing an excellent job of servicing the needs of micro-businesses, and it has product and distribution strategies that are built around that — its products are broad in scope and not specialized to particular merchant verticals,” Oglesby said. “As these micro-businesses grow and their needs become more sophisticated, they’ll need more specialized products, and product specialization tends to be more niche-oriented than a horizontal player with 2 million-plus customers can afford to be.”

“So Square’s strategy of partnering with independent software vendors that have specialized products makes sense. It will help Square hold on to its customers as they grow, instead of having them graduate off of Square and onto other providers. It may also help them attract some larger, more sophisticated businesses to their enterprise.”

Oglesby continues that If Square sees success with this strategy, it might be a wake-up call to software vendors.

“From a payment facilitator perspective it means that if ISVs fail to monetize payments on their own, then Square would be happy to take that burden off their hands. ISVs should be thinking hard about how they want to get into payments, and what they are giving up if they pass that revenue stream to others,” he said.

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