phone to phone transaction, Tap to pay

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The rationale behind the strategic collaboration of Block (Square) and Apple

This month on Thursday (2022.06.04), Block, Inc. (Square) established a strategic partnership with Apple. According to the terms of the agreement, Block’s Square POS will integrate Apple’s built-in contactless payment acceptance feature called Tap to Pay on iPhones. This service will be offered to selected Square sellers and stores this summer (2022) and will be rolled out to all Block customers by the end of the year.

Through this close strategic collaboration, businesses equipped with iPhones and the Square POS app will be able to accept face-to-face contactless payments in a more secure and seamless manner. On the flip side, for Apple, the integration of Block into the broader ecosystem of tools through Tap to Pay on iPhones will assist sellers in smoothly initiating, operating, and expanding their businesses.

According to a report by Grand View Research, the compound annual growth rate (CAGR) of the global contactless payment market is expected to reach 20.3% from 2021 to 2028.

Since Block’s early entry into the market, it has continuously developed the experience of using smartphones as card acceptance terminals. With the evolution of time and technology, Block has gradually provided merchants with chip card readers and options for contactless payments, ensuring that businesses do not miss any sales opportunities and gain greater flexibility to use new business tools. These efforts have also helped Block expand its influence in the thriving contactless payment market.

News about Block, Inc.’s (Square’s) development towards the ecosystem has been circulating. All these efforts aim to establish special finance beyond offline store transactions. In 2021, Square spent $29 billion to acquire Afterpay. At that time, UIC’s CSO Jackel Sheng offered some insights on this case to broadly outline Square’s strategic thinking:

  • 85% of Block’s (Square’s) Gross Payment Volume (GPV) comes from the United States. Afterpay generates over 50% of its Gross Merchandise Volume (GMV) from non-U.S. markets, with over 85% originating from online transactions. After the acquisition, Afterpay’s 16.2 million customers and nearly 100,000 merchants will be directly brought into Block’s (Square’s) ecosystem.
  • In the U.S., Square’s market valuation (TAM) is USD 100 billion (Seller business) and USD 60 billion (Cash business). However, in the global USD 10 trillion payment market, BNPL’s TAM is 2%, close to USD 200 billion. Afterpay’s average annual spend per user is USD 975, and the merger is expected to be completed in about a year. If TAM grows double the estimate, each consumer contributes USD 1,800 to TAM. Therefore, the total value of Afterpay’s customer base approaches USD 29 billion. This is why such a high cost was incurred for the acquisition.
  • Square’s acquisition of Afterpay might raise concerns among shareholders. Still, according to the management’s reasonable arguments, while internal development of BNPL features was an option, expanding market share and investing in development and marketing costs would take much longer than the pressure of time. Rapid entry into the market to immediately acquire customers and operational experience is the current strategic direction for many technology giants.

From any perspective, Block is poised to become a comprehensive Online and Offline payment service provider, thereby developing a financial ecosystem rather than merely serving small businesses. Having BNPL services is a trend, and this collaboration with Apple indeed demonstrates the multifaceted possibilities of deepening services within the ecosystem. As long as customer data in the payment and financial processes can be obtained, it will aid in expanding data collection, further analyzing consumer advantages, promoting membership loyalty services, and enhancing the retail experience. After all, Square has always favored Apple’s products and developed POS applications on them. With control over every node, information can naturally be rapidly grasped.

Block’s continuous growth in partnerships, robust product portfolio and features, and strengthened merchant advantages will continue to contribute to gaining a competitive edge compared to industry peers such as PayPal, Shopify, and Stripe.

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