Square Banks on Developer Platform to Woo Larger Sellers in March Upmarket

“The journey is one of peaks and valleys,” Carl Perry remarked, describing in a cautiously optimistic tone the progress made with the developer program he manages at Square. For more than six years, the commerce company has gradually opened more of itself up to third-party developers in a bid to bring its experience to more areas which include large sellers. As Square’s point person for nearly four years, Perry knows how things are going, sharing that while there have been marked achievements, there’s much work to be done: “We’re growing and hitting new peaks…and there’s hope that [developer adoption] continues to go up.”

Square’s early success centered on its hardware, starting with its mobile card reader. From there, it created a Point of Sale system and accessories such as a contactless and chip reader. Along the way, it dabbled in software which did well for sellers using its proprietary devices, but what about those who wanted that Square-like experience but didn’t want to give up the infrastructure they already had? 

The shift from small to large sellers

Founded more than a decade ago, Square’s base (and success) has been with small businesses. But now it’s a public company and with its Square Capital investment program, the company has set its sights on going upmarket, that is, larger sellers. Nearly four years after its initial public offering, Square has seen its quarterly percentage of large sellers (more than $500,000) by gross payment volume (GPV) increase while small sellers (less than $125,000) steadily decrease. Those in-between stayed relatively flat.

The makeup of Square’s Gross Payment Volume (GPV) mix since its Initial Public Offering in Q4 2015 to Q2 2019 (Source: Square earnings report)

“There’s no question that our developer platform is a strategic initiative for Square,” Perry admitted. “If you look at our quarterly report, you’ll see us specifically talk about the growth of upsellers increasing and a growing percentage of GPV coming from the platform.” Because of this, those sellers have “many needs around either integrating existing systems. Many are not going to replace them, so you have to integrate with what happens at Square with existing systems.”

Expanding the ecosystem means letting developers use the platform to “help sellers better run their business.” This means providing the necessary APIs important to commerce but also giving developers the ability to integrate with Square’s first-party tools and devices such as its card readers and POS offering. Perry cites the August launch of the company’s Orders API, billed as a “robust and fully-functional commerce platform”, letting orders happen online, in-store, or through an app, and have the transactions delivered to a Square POS product. 

“People talk about how we have payment capabilities, which is at our core (e.g. beautiful hardware and design). With this launch, we’ve significantly shifted what we can do with the platform to enable unique use cases for sellers,” Perry explained. 

Going further, he shared three specific places where Square was helping developers build solutions for sellers: The Square marketplace, which had 15 partners in 2015, but now has more than 275; through Square’s solutions partner program, those select developers who can build solutions for larger sellers and have an understanding of Square’s APIs; and lastly, through an open app marketplace that allows any developers to build solutions for Square sellers.

Asking large merchants such as a department store chain to swap out its infrastructure in favor of Square is next to impossible, let alone quite an expensive feat. Perry believes following the SAP strategy—Square solving problems in a specific domain before then proving to sellers that it should be entrusted to help more in their business—is a way to go. He cited Macy’s as an example: if the retail giant wants to redo its POS offering, that’s a “massive investment and a strategic decision on its part.” Perry said while suggesting that the merchant could still use Square as the backbone of a “line-busting” product during the holidays in which customers could place and pay for orders without unnecessarily queuing up. 

Power of middleware

But as Square evolves, so do its competitors, even some tech companies who may not have been in the direct competition before, such as Stripe. Both find themselves likely battling for the same customers, especially when it comes to developer programs. Square and Stripe also have similar capital investment funds with the latter launching its program in early September. How does Square view this complication to its march upmarket, especially since both platforms will compete for the same sellers? In short: It’s not worried, at least publicly.

“We own the entire tech stack, end-to-end,” Perry told me. “People can come to the Square ecosystem to get that.” He once again referred me to the Orders API launch as a major differentiator which gives sellers and buyers more flexibility in how they want their orders processed and delivered. “The ability to have a POS in the system is dramatically differentiated from anyone in the business. No one is providing developers the ability to manage orders across the system like what Square is doing. It’s the thing that differentiates Square and makes us effective for merchants than any other technology company.

As chief executive Jack Dorsey mentioned during Square’s 2015 fourth-quarter earnings call, the company won’t be able to create products for everything, so the next best thing is for it to become a middleware provider, something that helps sellers facilitate transactions no matter what systems they have. It wants to be part of the underlying foundation of every merchant’s business. Following this path makes it similar to (surprise!) Stripe, Braintree, Plaid, and Finix.

Perry claimed that in order for anyone to recreate the Square system using ad hoc products, developers would need “at least” between three to five offerings. “With Square, you can use existing systems and partnerships to build solutions to build omnichannel experience for their buyers,” he boasted.

Forward-thinking and lessons learned

Asked about the future of Square’s developer program, Perry told me today’s API offerings only encompass “a fraction of what first-party APIs do today” saying that the ability to move money from one account to another is not available, but there could be. He clarified that Square has tools letting developers build solutions that take payments in-person, online and in mobile apps, but forward-looking, the company could explore ways for its platform to grant developers the ability to do similar functions found in Square’s products: “Financial services and commerce functionality are a natural extension of that aim.”

I inquired about reports suggesting Square was testing a free stock-trading service, but a company spokesperson declined to comment about “rumors and speculation”. 

What about with machine learning APIs or blockchain technology? Perry acknowledged that these are areas of interest for Square and that with respect to machine learning, work is already happening at Square around this. Though the data available is not available on a broad network perspective, he said that “longer-term, we may do some things here.” As for the blockchain, Perry said it’s an area that the company is investigating and “we have some alpha programs for services that have leveraged blockchain” but declined to share additional information: “We have nothing to announce or discuss today.”

Ultimately, Square stated that its “relentless” focus on the needs of developers, regardless if it’s for small or large sellers, is a core part of building out its platform. And as the company continues to see its customers trend change from small to large, it’s going to need to come up with more creative ways to not only work with all types of commerce systems while still ensuring that the same Square experience that it claims merchants love, remains true to form. Because if that’s not the case, it risks losing one of the biggest differentiators it has.