What Drove Square’s Gross Payment Volume Growth?



Square’s GPV remained strong during 2Q16

Square’s (SQ) gross payment volume (or GPV) remained strong during 2Q16 as the company processed more transactions. Its GPV increased by 42% YoY (year-over-year) to $12.5 billion, thanks to the healthy growth in new sellers driven by new product launches. Meanwhile, positive dollar-based retention from existing sellers positively impacted the company’s growth.

Larger sellers’ payment volume, from companies that generate more than $125,000 in annualized GPV, grew by 61% in 2Q16. They now account for 42% of the total GPV, up from 37% in 2Q15.

Analysts had believed that the company would face pricing concerns as it acquired more large merchants which, in turn, could impact the margins. However, the company was successful in maintaining the transaction revenue margin while increasing the large sellers’ GPV.

Article continues below advertisement

Square’s lending arm also had a stellar quarter

Square Capital, the company’s merchant lending arm, witnessed strong growth in volumes in 2Q16. The company ended the quarter with $189 million in loans made to businesses, up by 123% YoY. The company’s low customer acquisition costs due to its association with millions of sellers and low rates are the primary drivers of this program.

Moreover, the company was successful in attracting additional investors who would purchase its loan products. In 2Q16, Square added five new investors to its program. Square sells most of its loans to third-party investors and receives an upfront fee along with a small ongoing servicing fee.


More From Market Realist