Square’s next play: a one-stop shop for small businesses


Steve Ziganti, co-owner of 3 Steves Winery in Livermore, Calif., often dreaded payday, but not for the reason you might expect. He was happy to pay the the 30 to 40 workers who made his small winery possible. What he took issue with was the process of paying them.

His existing system was a drag. The winery’s part-time employees clocked in and out each day by scribbling on a printed Excel spreadsheet. When it came time to pay them, Ziganti tallied up the hours each person worked, figured out how much overtime he owed them, calculated the amount of tax he had to withhold for each employee, and crossed his fingers he didn’t make a mistake in the math.

When he was approached with a potential solution by a young payments company called Square — founded by Twitter co-founder Jack Dorsey — he jumped at the opportunity to beta test it.


Ziganti was already a Square customer — he’d been using Square Register, a credit card processing tool, for two years — and liked the flexibility it offered. Now he was trying Square Payroll, a new service Square rolled out Tuesday in California that automates the entire process of paying workers and their taxes. Businesses pay $20 a month for the service, plus $5 a month for each employee they process.

Four months in, he’s a convert.

“I can’t imagine changing from Square,” Ziganti said.

In the highly competitive payment processing and payroll space, this is the way Square is hoping to carve a place for itself. Step one: sign people up to use its credit card reader. Step two: offer those customers services it can charge for.

Square has done a good job with step one, according to James Wester, research director at IDC Financial Insights who specializes in global payments.

“They’ve been aggressive in the past in getting the initial product out there, and I think that serves them well now for providing additional services,” he said. According to Square, its client base is in the millions, although it would not reveal exact figures. “All those companies needing access to transactions likely need payroll services,” Wester said.

Square is also banking on them needing a slew of other services it offers: analytics, inventory management, appointments and money lending.

It’s a smart move, Wester said, particularly because the profitability of its core payment processing service is currently unclear. Square charges 2.75% on each credit card transaction, but the company has not revealed how much of that goes to the credit card companies and how much it keeps. Despite a customer base in the millions, its profit margins are probably slim.


Square might win new customers over established competition such as Paychex and Intuit because its clients are already familiar with the Square brand and may prefer to stick to one company for all its small business needs. But it’s no slam dunk, according to vice president of information technology at retail marketing firm Interactions, Dr. Lance Eliot.

Five years ago, he said, Square stood out as one of the few alternatives to traditional credit card processing machines and cash registers. Today, customers have dozens of payment options, from different credit card readers to Apple Pay, Google Wallet and bitcoin. It would not be uncharacteristic of another tech company to start offering similar services as Square.

“If Square does not stay on top of the frenetically paced world of business tech, there is plenty of competition that will gladly muscle in, and Square could just fade away, ” Eliot said. “So they need to keep those alley-oops coming to be current and keep growing.”

Twitter: @traceylien