As a high tech financial services company, Square (NASDAQ:SQ) got its start by targeting “alternative” customers. Those who traditional banks and financial service companies largely ignored. SQ is now a big payer in the point of sale, mobile payment and financial services industries, with a market cap approaching $30 billion. The next stage of growth for SQ stock may just be thanks to a return to its roots: embracing the customers that traditional financial companies don’t seem to want.
Recent moves have seen SQ rolling out the ability for customers to deposit bitcoin to their mobile Cash App, and a beta program to support companies that sell CBD products.
Non-Traditional Customers Helped Ignite SQ Stock
Square started in 2010 as a solution that allowed small businesses and individuals to accept credit card payment through a small device that plugged into their smartphone’s headphone jack. These were customers who were underserved by the traditional financial industry — everyone from artists to independent contractors to babysitters. All they needed was a smartphone with the Square app and the free Square Credit Card Reader and they could start accepting payment using plastic instead of being forced to deal only in cash.
From there, the company expanded into point of sale solutions, financial services (with Square Capital), payroll processing and Cash App (originally known as Square Cash).
The company started out by appealing to what had been considered marginal groups, largely ignored by the big financial companies. As it succeeded and leveraged that success to roll into a more mainstream position, Square stock saw impressive gains. It went from trading for under $13 in 2015 to coming tantalizingly close to hitting $100 last fall.
Embracing the Underdogs (Again)
Investors are wondering what the company can do to launch its next big growth phase. That Cash App has been looked at as having considerable potential, and SQ reported in its Q1 earnings that Cash App transaction volume had increased 2.5x, year-over-year.
However, the competition is becoming fierce in the peer-to-peer payment market. In particular, PayPal’s (NASDAQ:PYPL) Venmo is doing booming business. Even Square’s point of sale stronghold with small businesses is under fire, with Shopify (NYSE:SHOP) making a move to release retail payment processing hardware.
Square has been quietly making moves that could once again pay off with a big boost to SQ stock growth, by making its services available to customers who are often shunned by traditional financial companies.
After dabbling with the feature in beta for months, yesterday SQ announced that its Cash App will now allow users to deposit bitcoin. Banks are wary of anything to do with cryptocurrency, and this move could significantly boost both the number of Cash App users and the volume of transactions. Square makes money through a transaction fee if someone deposits bitcoin to their account, then uses Cash App to buy something from a retailer. The company also stands to make money on exchange rates when someone uses Cash App to buy or sell bitcoin.
Square is also taking steps toward supporting the cannabis industry, another market that many traditional financial companies have shunned. In May, the company began a beta program supporting payment processing for CBD products. It’s a baby step, but one that most other payment processors are reluctant to take. And with the cannabis industry poised to take off, being an early supporter could have significant upside for Square stock.
SQ stock has been in recovery mode since sinking after its Q1 earnings report, with weaker-than-expected payment volume and Q2 guidance. However, at $69.95 it has a long way to go to reach the $99.01 all-time high Square stock hit last September. By once again embracing customers that the competition is wary of — the alternative customers — SQ could get a big boost as markets like cannabis go mainstream.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.