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Why Jack Dorsey’s Square may become the go-to small business bank

July 21, 2021, 6:12 PM UTC

Square CEO Jack Dorsey talks a lot about Bitcoin. So you probably don’t know that millions of businesses use his company’s payment processing service.

Now, Square plans to offer banking to those merchants. It’s a shrewd move from the company, and maybe an unlikely one, given Dorsey said earlier this year at a Bitcoin event that “we don’t need the banks anymore.”

Nevertheless, the company on Tuesday introduced Square Banking, which provides checking and savings accounts to small businesses. Square is also folding its existing debit card business (merchants can get prepaid debit cards loaded with cash from their sales) and lending businesses (formerly known as Square Capital) under the Square Banking brand.

Square hopes this one-stop-shop convenience will pry businesses from the likes of Wells Fargo and Chase. Square is also sweetening the pot by offering its customers no monthly fees, overdraft fees, or minimum balances, and a fixed 0.5% APY on their savings for all of 2021.

Since Square is also a business payment processor, its main draw is combining merchant sales data with banking services. Users can automatically take a set portion of their daily sales and drop it in their savings or pay back a Square loan. Different savings folders can be created to designate money for specific business goals.

Square also doesn’t require credit scores for loans, because it can determine eligibility based on each customer’s past sales data as processed through Square.

So now that Square offers banking: What’s next?

Square has been doggedly adding infrastructure to support cryptocurrencies, and has expanded its consumer-facing Cash App. The app initially had gained popularity for instant money transfers, like its competitor Venmo, but it has since been upgraded to handle everyday purchases through a linked debit card, and so that it could be used to buy cryptocurrency.

It’s not a leap to imagine Square eventually helping vendors accept cryptocurrencies for their goods and services, which Dorsey alluded to when announcing that the Bitcoin infrastructure business would include the Square Seller app, its Cash App, and newly-acquired music streaming business Tidal. There’s also room for Square to link Cash App users with vendors that use Square to give them easier ways to pay or built-in loyalty perks.

Square’s push into cryptocurrency also makes sense because it’s already generating a ton of revenue for Square. After giving users to send Bitcoin to one another in March, Cash App’s revenue blew past analyst expectations in the first quarter, taking in $5 billion versus an expected $3.3 billion. Gross profit for square was up 171% year over year, though only about a quarter of that could be attributed directly to Bitcoin.

Bank accounts also make Square’s other offerings more sticky and more convenient. People don’t like changing banks, which will be an initial hurdle for Square, but a potential boon later on.

And with no fees, maybe Square doesn’t need to have all the bells and whistles of other financial institutions to gain a foothold in the market—it just doesn’t need to be as terrible as the rest.

Dave Gershgorn 
@DaveGershgorn

Correction (July 21. 2021): An earlier version of this article misstated the number of merchants on Square. The company said there are “millions”.

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BEFORE YOU GO

A farm app Ponzi scheme. A gripping yarn from Rest of World details how Turkish swindler Mehmet Aydın created a viral clone of the Farmville game called Farm Bank, with the twist that it allegedly supported real farms. Players invested large sums of real currency into the app, only for Aydın to run off to South America with $80 million in his pocket.

Farm Bank went on to weave a complicated, meta-business model: in 2017, the company began setting up deli franchises across Turkey. Franchisees paid Farm Bank about $30,000 (100,000 lira) to open shops that sold sausage, cheese, butter, honey, and other goods emblazoned with the Farm Bank logo — suggesting that the produce had come from the company’s livestock. It did not. 

Meanwhile, Farm Bank players received 95% of their earnings in cash and 5% in vouchers that they could use to purchase items from the delis. The company would then pay deli owners a 20% profit on the items players bought with the vouchers. More than 100 Farm Bank delis popped up throughout Turkey. 

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