Could Square be the first global small business bank?

Late last week we learned Square was back for round two of its banking licence application. The company was reported to be reapplying for the license, after withdrawing its initial application earlier this year.

While the bank will be Utah based, it isn’t hard to imagine the U.S. company as having global small business banking ambitions. Today its payments and merchant ecosystem is available in Canada, Australia, Japan and the U.K. These are all jurisdictions that have struggled to produce good small business banking alternatives during the fintech boom, despite many offering ‘neobank type’ licenses.

Square has had a pretty good run over the past two quarters, after slower growth in the preceding three. In the 2018 third quarter the company saw net revenue grow 51% YoY to $882 Million, on Gross Payment Volume of $22.5 Billion. While the company is still a relative minnow alongside competitor PayPal (by way of comparison, the payments giant pulled in revenue of $3.68 billion for Q3 on $143 billion in total payment volume) Square is no doubt banking on a license to help it further encroach on PayPal’s market share. It would also position it to further solidify its objective to own the lion’s share of commerce requirements for small businesses.

Square also has a hand in the crypto jar, with $43 million of Q3 revenue attributed to bitcoin. In August of this year the company was awarded a patent for its crypto payment network, and reports suggest adding bitcoin to its Cash App back in January helped Square make a dent in PayPal’s Venmo during 2018.

PayPal started from a consumer first strategy, and then pushed through into the SME space. Square on the other hand has played a reverse strategy. And while Square could have been seen as a acquisition target for PayPal up until a year or two ago, the banking license play now feels like a solidly competitive move on the chessboard. If Square can deliver on SaaS banking for SMEs, rather than the hodge podge of services and pricing that exists today amongst the incumbents, then it may have a real killer advantage. It will need it, because PayPal has deep pockets, and can instigate a price war it can almost certainly win.

Certainly one to watch in the SME banking space in 2019.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

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