Square's Global Play: Merchants First, Hardware Later

Square is adding global support for its Register merchant services app, a move that allows the company to measure demand in new markets before investing in the distribution of its hardware and other services.

Square's Register app is primarily meant to interface with Square's card readers to manage swiped card payments, but it also allows merchants to accept keyed-in card account numbers, set up an online storefront and manage inventory. The app's latest updates on Google Play and Apple's App Store indicate that Square Register now supports 130 currencies and is available worldwide beyond the three countries (U.S., Canada and Japan) where Square offers hardware.

"[Square] is leveraging the free Register software as a means of making inroads into global markets and pinpointing where the service is seeing the greatest traction," said Jordan McKee, a senior analyst at 451 Research. "Conceivably, it is testing the waters and will turn on payment processing and provide necessary hardware in markets where demand is highest and an initial merchant base has been established."

In this way, Square's strategy would resemble that of Alipay, which is expanding beyond China by first allowing foreign e-commerce merchants to sell to Chinese consumers.

Square has regularly updated Register, adding functions such as data analytics, refunds and gift card issuance in just the past few months. Square also reports momentum in its small-business lending program, which determines merchant creditworthiness through the company's sales history through Square.

"It appears that they've done a pivot to become a business services company and have broadened their product suite well beyond payments," said Thad Peterson, a senior analyst at Aite Group, who called Square's Register update a "nose in the tent" to establish its brand in advance of fully supporting new markets.

By making Register the "lead" of an international move, Square can acquire merchants, then in the near future sell its upcoming EMV reader or enable merchants to use Square Register to sell online through an integration with Square Market, the company's e-commerce product.

"While Square Market is not available on a global scale, it would seem plausible that the vendor may soon extend this service to select international markets as the next iteration of its strategy," McKee said. "With the hurdles to enabling payments in the virtual world dwarfed by that of the physical world, it's reasonable to believe that Square Market will precede in-person payment enablement, at least in some markets."

Those in-person payment hurdles abound. Square already faces challenges convincing its clients to upgrade to its upcoming EMV-chip card reader in the U.S., and an international deployment of the device may pose added hurdles. And the majority of the world is EMV compliant, which may require Square to perform more upgrades as it expands.

Square's EMV card readers accept only signature-based transactions, but to expand to new regions "you need an EMV reader with a PIN pad," said Richard Crone, a payments consultant, adding the PIN pads have the Triple DES encryption that is generally required in Europe to protect card data.

Square's activities in Canada are also worth watching, Crone said. Though Canada is an EMV region, Square entered the country before it designed an EMV version of the its card reader. But even without EMV, Square is building a merchant base that it can tap into as it develops more payment offerings, Crone said.

"Even in Canada, cards still have mag stripes on them," Crone said, adding the benefit for Square is its largely paperless model enables it to rapidly accumulate a consumer base through email and mobile phone numbers, which enhances its value proposition for merchants in any market. "The play for Square will eventually be mobile payments. You can get rid of the risk and the card, and Square will be able to accomplish mobile payments on both sides of the fence (m-commerce and contactless)."

Square will face a number of competitors, particularly in Europe, where a number of companies are looking to disrupt traditional point of sale systems. PayPal Here, Payleven, SumUp and iZettle are already active in Europe and have established brands.

"It was always only a matter of time before Square attempted to go international, so the move is not surprising…however it will find a crowded market," said Zil Bareisis, a senior analyst at Celent. "And it will have to find multiple acquiring partners as acquiring in Europe remains relatively fragmented."

Square did not return a request for comment by deadline.