Square’s Dorsey Not Troubled by the Acquiring Industry’s Mega-Mergers

Square Inc. has been a non-traditional merchant acquirer since its birth nearly a decade ago, and a wave of industry mergers won’t change that, according to chief executive Jack Dorsey. 

“I do think we will continue to see consolidation, but that doesn’t worry me,” Dorsey, who also is Twitter Inc.’s CEO, said Wednesday afternoon. Instead, Square is focused on building its so-called ecosystem of point-of-sale hardware, payments and business-management software, online offerings, and related products and services for merchants, as well as some consumer-oriented products such as the Cash App mobile person-to-person payment service.

“We haven’t historically taken a position of just buying revenue or buying customers; we want to buy technology, and that is what we’re focused on,” he said.

Dorsey’s comments came in response to a question from an analyst about his take on industry mergers during the company’s first-quarter earnings conference call. Pending deals include the $22 billion acquisition of leading payment processor First Data Corp. by Fiserv Inc., and the $43 billion takeover of Worldpay Inc. by Fidelity National Information Services Inc. (FIS).

“They do so in a fairly typical pattern that we’ve resisted, which is look at just parts of the equation instead of building a greater ecosystem,” Dorsey said. Shortly afterward he added that “we tend to do much smaller [acquisitions] than our peers because we’ve managed to find really great teams where every single person in the organization is really high-impact.”

San Francisco-based Square reported gross payment volume of $22.6 billion in the first quarter, a 27% increase from $17.8 billion a year earlier. What Square calls “mid-market sellers,” those generating annualized GPV of more than $500,000, now account for 24% of Square’s overall GPV compared with 20% in 2018’s first quarter. In contrast, part-time sellers and small businesses generating less than $125,000 in annualized GPV accounted for 49% of first-quarter volume, down from 53% a year ago. Merchants between $125,000 and $500,00 in annual volume produced 28% of GPV, up slightly from last year’s 27%.

Another analyst noted that the 27% GPV growth rate was slightly less than in other recent quarters. He asked if Square was seeing more competition from rival acquirers’ offerings for small and mid-sized merchants, such as First Data’s Clover system or the new Vital POS  service from Total System Services Inc. (TSYS).

“We are definitely seeing competition on the edges,” Dorsey replied, but he again returned to the theme of ecosystem as Square’s competitive differentiator. “We do expect people to copy aspects of it,” he said.

Volume on Cash App and related services was up 2.5 times from 2018’s first quarter, but Square didn’t disclose transaction numbers. The Square Capital merchant-lending service generated 70,000 loans worth $508 million, up 50% year-over-year. Neither Dorsey nor chief financial officer Amrita Ahuja gave any updates on the call about Square’s application for an industrial bank charter.

Square reported total net revenue of $959 million, up 43% from $669 million a year earlier. Transaction-based revenue grew 26% to $657 million. The company reported adjusted earnings before interest, taxes, depreciation and amortization of $62 million, up 72% year-over year, but Square still posted a net loss of $38 million compared with a $24 million loss a year earlier.