How Squares bank can use bitcoin profits to promote economic integration

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Only a year has passed since Square received the green light from the supervisory authorities to run the bank it was launched on Monday, but in that time bitcoin has become a critical driving force for its revenues.

During the fourth quarter, bitcoin trading contributed more than half of the company’s total revenue – and it will make a big difference as Square Financial Services for products on the market.

Square is best known for providing mobile outlets and other payment services to merchants; bitcoin trading came out of the company’s experimental approach to the Cash App, the only consumer-oriented product. This model enabled Square to make money even when the pandemic weighed on traders who trusted its service.

By adding its own bank subsidiary, Square will be able to react even faster to changes in the market.

What makes the installation so flexible is that “Square can think of long-term loans and savings products without having to go through partnerships”, says Alenka Grealish, senior analyst at Celent.

Square now operates a “closed loop” model where it builds its own infrastructure, says Grealish. It differs from other payment-focused fintechs that work with third parties to streamline existing rails. Square will still sell loans to third-party investors.

The Salt Lake City-based bank will allow Square to bring banking to markets that are subordinated and will not compete directly with traditional banks.

“By bringing banking capabilities internally, we can work more smoothly, which will serve Square and our customers as we continue to work on creating financial tools that serve the underprivileged,” said Amrita Ahuja, Square CFO and President of Square Financial Services. ia blog posts.

This leads the bank more in line with the Cash App’s mission; In income talks, Square CEO Jack Dorsey has said that his company plans to use its increased cash from bitcoin transactions to reinvest in Cash’s tools as a platform for financial services.

Square reported triple digital revenue growth in the third quarter and register the use of its Cash app in fourth quarter. The value of Square’s own bitcoin investment has jumped to nearly $ 400 million from $ 50 million in October, according to Coindesk. While Square Capital’s volume has declined during the last year during the economic downturn, it is good to take out a loan.

Square’s industrial banking license “is a step that allows greater control over its delivery stack and a larger share of its products’ finances,” said Eric Grover, principal at Intrepid Ventures, adding that Square can issue credit cards directly to Square Cash users and merchants.

Square’s bank also improves its merchant acquisition capabilities and places it in competition with Adyen, Elavon and Chase’s trading services, all of which control merchant acquisitions and payment processing. Square also competes with payment processors and banking technology companies that have joined forces in recent years to build scale. and commerce-focused technology companies like Stripe and digital payment companies like PayPal. As a direct lender, Square would have an advantage over PayPal and Stripe, while it could retain some of the speed advantages it has over traditional payment processors that have larger companies.

“Trader acquisitions are a relatively low risk activity compared to credit,” said Grover. “I suspect everything else is the same, Square also wants more control.”

Squares’ ability to link bitcoin directly to the bank is likely to be indirect. In January The office of the currency monitor allowed banks to use stablecoins to settle financial transactions. Bitcoin is not a stable currency; Stablecoins are pegged to traditional currencies to mitigate volatility and are therefore more likely to be used for financial services. While Square supports bitcoin transactions and Dorsey supports bitcoin publicly, Square does not support bitcoin for direct trade payments.

“What Square will not be able to do is directly issue debit cards linked to cryptocurrencies or other deposits,” Grover said.

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