The payments company Square (NYSE: SQ) is known for defying convention. From the outset, Square was conceived to serve the most niche of niche businesses; the company got its start when a glassblower artist who happened to be a friend of CEO Jack Dorsey's needed a credit card reader. No other financial institutions were filling that void, so Square was created. Problem solved.
Fast-forward nine years and Square is defying conventional finance by placing small bets on bitcoin and exploring opportunities in banking. One is extremely novel, the other can be painfully rigid. Here's why Square is compelled to pursue both, and what it signals to investors.
The significance of speed
Square's management team has realized since day one that speed is critical to everything it does. First off, speed was important to process credit cards. Then it was critical to enticing vendors to download its app to get up and running. Now, it's the premise behind Square's Instant Deposit, which allows for rapid business deposits for vendors.
The leadership team at Square sees similar opportunity in bitcoin and banking. To be sure, neither is meaningful to the company at the moment: Bitcoin was described as "really immaterial" by Square's CFO during its recent earnings call, and the company has only applied for -- not yet received -- a banking charter.
But the potential is enticing. Bitcoin is attractive because it's a purely digital currency and, according to Square, is in high-demand among its core audience. Thus in a move that sets it apart from other finance companies, the company has begun to offer users of its Square Cash app the opportunity to buy bitcoin. And this is something that can take place instantaneously. Whether bitcoin becomes a bona fide currency or not, the technology behind crypto is interesting for a digitally native company like Square, too.
Banking, meanwhile, is an industry where stability and security trump speed, but that dynamic is changing. Technology has allowed products to emerge that combine all three, including Quicken's Rocket Mortgage and banks without bricks and mortar like Bank of the Internet (NASDAQ: BOFI) . There are legacy banks involved, too, but few are embracing the lower end of the market in the same way as Square.
As CFO Sarah Friar pointed out on the call, users "want fast access to capital." So far, that's been through payments. In the future, it could be through bitcoin and banking.
The democratization of finance
https://www.nasdaq.com/article/why-squares-betting-on-bitcoin-and-banking-cm934359
Topic: [2018-03-13]Why Square's Betting on Bitcoin and Banking [NASDAQ.com] (Read 122 times)
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