Square Inc. Loves Apple Pay

Square's latest reader can accept Apple Pay and Android Pay. Image source: Square.

Apple's mobile payment solution could be great for Square .

The fast-growing payment processor believes the ongoing shift to NFC-based mobile payments, led by Apple Pay and Alphabet's Android Pay, will provide a boost for the company. Apple Pay and Android Pay aren't new, but they remain in their infancy, presenting Square with an opportunity.

Giving new meaning to the Square logo

Square launched its mobile payment solution in the fourth quarter last year. The $49 reader accepts both NFC-based mobile payments and credit cards equipped with EMV chips. Demand has been strong; Square has sold nearly 500,000 of them to date. Square's hardware revenue rose 634% last quarter on an annual basis and 154% sequentially as its merchant partners upgraded their equipment.

Merchants that can't accept EMV cards can now be held liable for fraudulent charges, creating an obvious demand for EMV readers among Square's network of sellers. But CEO Jack Dorsey is more excited about the prospects of NFC adoption, viewing it as an opportunity to associate the Square brand with a new method of payment. He reiterated this notion repeatedly on the company's earnings call back in Februaryand then again earlier this month.

Square CFO Sara Friar echoed Dorsey's comments during the company's May earnings call:

NFC payments remain a small niche

Mobile payments aren't new. Google launched Google Wallet in 2011, bringing NFC payments to certain Android phones. Apple followed in 2014 with Apple Pay, and then Google expanded and rebranded its mobile payment solution last year with the introduction of Android Pay. Yet adoption has been slow.

All mobile payments, including Apple Pay and Android Pay, account for less than 1% of US card transactions. To some extent, that's driven by hardware -- many retailers lack the appliances necessary to accept NFC payments. By associating itself with NFC, Square could become the go-to payment provider for merchants looking to give their customers the ability to pay with their phone.

Last month, at the Coachella music festival, Square was the sole provider of point-of-sale solutions: All Coachella merchants used Square's latest reader to accept payments. Of those customers who chose to pay with a card, about 10% used a mobile payment service. Obviously, that still represents a small minority, but it's about 10 times the national average, suggesting that Square's hardware could meaningfully improve mobile payment adoption, further strengthening the link between the Square brand and mobile payments.

Building a bigger ecosystem

Mobile payments are remarkably secure, convenient, and fast -- much faster than EMV card payments, which are often faulted for their sluggishness. "NFC [is]... super, super fast.One of the complaints that we have heard around chip cards is they're a little bit slow," said Dorsey on the company's February earnings call. By speeding up the payment process, Square can increase the satisfaction of its merchant partners and perhaps improve their business.

Ultimately, Square's goal is to expand its ecosystem of sellers, generating more payment volume and growing the potential base of customers for services like Square Capital and Caviar. Square doesn't need NFC payments to succeed, but it presents an opportunity for the company to expand its customer base. Dorsey underlined the opportunity on the company's earnings call earlier this month:

The article Square Inc. Loves Apple Pay originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. 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.

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