OBSERVATIONS FROM THE FINTECH SNARK TANK
square announced a partnership with Google’s Merchant Center that:
“Make it easier for Square sellers to reach new customers through direct product listings on Google. Square for Retail merchants can now display products from their stores alongside items from other ecommerce stores of all sizes. “
The integration will allow Square merchants to add their products to the Google interfaces, including the search, shopping tab, images, maps and YouTube. Consumers can then buy these items directly from the seller’s online shop.
According to Bill Ready, President of Commerce, Payments and NBU at Google:
“Google has a natural synergy with platforms like Square as we both work to support a more open trading ecosystem and empower retailers of all sizes.”
The Google Square deal followed another announcement from Google that it has entered into a partnership with Shopify in order to enable the sellers of this platform to present their products on the platforms of Google.
A more open trading ecosystem, my foot
Google may speak of an “open” retail ecosystem as it sees itself as the Switzerland of e-commerce, working with companies like Square and Shopify.
But Square-Google’s announcement is just another volley in the battle for retail dominance among the major platforms. According to I’m looking for Alpha::
“Last year, Square’s Cash app was in the spotlight while the seller’s ecosystem struggled. That may change as the economy recovers and the seller’s gross profit growth returns to pre-pandemic levels. Seller’s gross profit contribution, opportunity to serve larger sellers, and products the two ecosystems can bring [CashApp and Seller] together they do [Seller] Ecosystem that is critical to the success of Square. “
A partnership with Google tackles Square’s Achilles heel: It caught up with Shopify in the ecommerce arena. According to Merchant Maverick::
“Square offers very limited stand-alone business, although you can incorporate other shopping cart options that support Square Payments. The eCommerce support initially felt like a minor matter, but recently the company has expanded its offering. “
The war for merchants
The battle for merchants is not just limited to their e-commerce or payments business. It is a struggle to be the provider of the wide range of services that merchants need to manage and run their business.
All of the major platforms are participating in an arms race to win this war, and each is trying to fill the gaps in their offerings.
PayPal’s acquisition of Honey enabled the payment company to expand its marketing and sales functions. At the time of the acquisition it was TechCrunch commented::
“PayPal’s network of 24 million retail partners will have the ability to offer consumers targeted and more personalized promotions to attract new businesses and increase sales. PayPal credit can also be integrated with Honey to fund larger purchases. “
PayPal highlighted its merchant value chain opportunities in its February 2021 investor presentation with a slide titled “We’re building a comprehensive platform to drive the global digital economy. Big companies solve real problems.”
“Enables platforms to embed financial services so merchants can easily send, receive, and store money.”
According to the press release, Stripe has: 1) expanded its partnership with Shopify to create Shopify Balance, a business checking account designed for independent businesses and entrepreneurs, and 2) expanded its banking partner network to include Goldman Sachs and Evolve Bank as U.S. partners standardized access to banking functions via APIs.
In the war for merchants, banks are collateral damage
Not only will the war for the merchants result in a winner, but the banks will become the big losers as the platforms affect the banks’ lending operations.
Banks need to become part of the merchant platform ecosystem …
The majority of fintech experts see the shift in trading platforms towards deposits and financing as a threat.
However, smart banks will see it as an opportunity to use the platforms as sales channels to reach small business borrowers at a lower cost.
In return for lower cost, banks will have to give up some margin on the loans (through revenue sharing or other fees paid to the platforms), but the overall profitability could be as good – or better – with improved loss monitoring and management from the platforms.
… Or build your own platforms for other types of small businesses
Square, PayPal, and Shopify don’t cover the range of small businesses, so banks can focus on other small business segments where the big platforms don’t work.
Banks need to continue protecting their selected segments from the embedded finance trend and should protect their markets by doing what the platforms do – in adjacent areas of the value chain like accounting and payments (like fintechs like Autobooks can help banks with this).
The short-term gain from the paycheck protection program
Banks were congratulation themselves for their role in maintaining small business solvency during the pandemic with Paycheck Protection Program (PPP) loans.
Wait, did I say “credits”? Sorry, I meant “handouts”.
Sure, the money went a long way in keeping some small businesses alive, and these companies – and others – are grateful for the way many banks have bent over backwards to issue these loans (handouts).
But banks are deceiving themselves when they think this translates into longer-term relationships.
How likely is it that banks will lend these companies more money if there is no government guarantee behind it? And how quickly will these loan applications be processed when things are back to normal? Not a lot and not a lot.
Small business platformization is a threat to banks’ small business relationships. Banks will be squeezed if they don’t go on the offensive.