Squares Inception, IPO and Dorsey on the Defensive

By Markets Fool.com

Square(NYSE: SQ)had a very interesting inception sparked when co-founder Jim McKelvey lost a sale of one of his pieces of art as he was unable to accept a credit card. He teamed up with co-founder and current CEO Jack Dorsey to create a product which enabled vendors to never miss a sale and the rest, as they say, is history. In this clip from Industry Focus: Technology,we discuss Dorsey's defensive manifesto and the multitude of offerings Square now has.

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A full transcript follows the video.

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This podcast was recorded on Aug. 19, 2016.

Dylan Lewis: What issome of the background here with Square? How did they come to be? What was the inspiration?

Sarah Priestley:It'sactually pretty interesting. They werefounded in 2009 by Jack Dorsey, whoeveryone will know as one of the co-founders ofTwitter(NYSE: TWTR).Hefunded it with Jim McKelvey, who was, at the time, I'm not sure if this was his job or if he was dabbling in it as a hobby, but he became a glassblower. And he lost a sale to aprospective customer because he couldn't accept credit cards. So,they came away from that and they thought, "This has to affectmillions of other small businesses in the same way that it's affected us," and they wanted a solution for that. Andthat's exactly what they've created.

They developed Square, a payment service provider. Theybasically facilitate small businesses to acceptcredit card and card payments. They IPO'd last year and raised around $275 million.

Lewis:I think one of the coolest things with the early stages of Square is Jack Dorseypublished this manifestobasically explaining all of the reasons things could possibly go poorly for Square and the idea could flop.

Priestley:Yeah,he was absolutely on the defensive. AndI kind of like that. He came out with this "140 reasons why Square will fail." And every single one of those reasons, he had a rebuttal for. I think you'll find, andI think this is a thread for him, too,in a lot of his communications about the company, he is verydefensive. He's always on his guard. Andthat's kind of the way he has had to be withsome of these businesses that he's started.

Lewis:He owns over 20% of shares right now.

Priestley:He does. He owns 24% of the Class B shares.

Lewis:So,what does Square do, exactly?

Priestley:As I said, they're apayment service provider. What this means is they're afacilitator. They give you either a dongle that you can put on your phone to swipe or dip a card. There's a contactless reader for $49. There's a stand for $100. Andafter that, you can accept credit card payments, and they take a 2.75% cut for doing that service. So, it's a flat-rate charge.

Lewis:And then,there's a slightly different rate ifit's not through and through as credit card and typed in manually instead.

Priestley:Yeah,it's higher. I think it's something like over 3% plus $0.30 per transaction.

Lewis:One of the things that I've noticed is that they're very clear in thatthey are not a credit card processor. They area payment facilitator, they are an aggregator,but they draw that line pretty hard.

Priestley:Theyabsolutely do. When we lookmore into the different aspects of the business,you can see why they do that. They haveso many more product offerings. They talk aboutemployee management. So, for $5 per employee per month, they'll do time cards, tipreconciliation, all those kind of things. They offer invoices. So, when you're working business to business, you can send invoices through Square, and they take a cut of that. They offerappointments, online store, soyou can easily setup your payments online. Payroll, they'll run for $25 a month. Email marketing. There's a wholeplethora of offerings for small companies. That's how they see themselves. Theywant to be a central part of your business, and they do deliver on that.

Lewis:And I think that's howmost people probably encounter Square.

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Dylan Lewis has no position in any stocks mentioned. Sarah Priestley has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.