November 10, 2017

SoFi seemed to be controlling the pulse of the fintech narrative in the first half of this year, with aggressive expansion into new product lines and even an industrial loan charter (ILC) application. However, the momentum has shifted quickly in the last few months. While the company continues to generate significant revenue ($145MM in Q3), two more senior executives have recently left the firm, and SoFi’s interim CEO has said they will stop the planned expansion into Australia and Canada.

As SoFi deals from the fallout from its various issues, Square has taken over the spotlight as a fintech company that is continuing its strong growth. While SoFi pulled its ILC application, Square is still moving ahead with the application it submitted in September, though CEO Jack Dorsey recently said it could be a year until a decision is made.

Square is also benefiting from a strong Q3 – adjusted revenue of $257 million beat estimates of $244 million, while adjusted EPS of $0.07 beat estimates of $0.05. One factor driving the growth is Square’s move upstream. After initially gaining a foothold in the mom-and-pop small business market, a large chunk of current growth is coming from the company moving up market to larger retailers.

Another sign that Square is top of mind in the industry – CBInsights just published a deep dive into Square’s strategy, including job postings, partnerships, products, and patents. The full report is here, with some highlights below.

Square Capital

Square Capital is the lending arm of Square which has made nearly $2 billion of loans since 2014 while maintaining a 4% loss rate. While initially focused on providing loans to merchants using the Square payments platform, the scope has expanded to partnerships with other small business services companies such as Upserve and BigCommerce to offer loans outside of Square’s existing customer base. As noted, the industrial loan charter could also majorly transform Square’s ability to fund and make loans.

Square Cash

Square Cash is the p2p payments app that competes with apps like Venmo and Zelle. This part of the company has seen a greater level of focus as evidenced by its job postings. Last year, the company had zero open roles for its Cash team, while today there are fifteen. This summer, Square also launched a prepaid debit card that users could use to spend money from their Square Cash account.

M&A and Investment

Square has been a consistent acquiror, picking up 13 companies in its 8 years of operations. One of its largest acquisitions was the $90 million deal for Caviar, a food delivery startup. Square sees Caviar not as a standalone food delivery service, but an extra product set that serves its existing customer base by making it easy for restaurants to sell more through delivery services and deepens engagement. This is the same strategy it employed when buying the assets of OrderAhead’s pick-up business, which supports order-ahead capabilities for its restaurant customers.

Square also pairs up strategic investments with partnerships. In September, Square announced a $25 million investment into event organization and ticketing platform Eventbrite. As part of the deal, Square will be Eventbrite’s payment processor. With roughly $4 billion in payment flow this year, the Eventbrite deal is a big move for Square.

While not perfect, Square has been doggedly consistent in its product and business line expansions. The reward – Square’s stock has nearly tripled this year from $14 to $38, bringing its market cap up from around $5 billion to $15 billion. In a difficult year for fintech companies, Square’s strategy and execution is shining through.