Rising Competition Could Drive Up Square’s Costs



Kabbage preparing to take on Square

Square’s (SQ) financial technology (or fintech) industry is becoming increasingly competitive. Kabbage, a US online lender for small businesses, is gearing up to venture into the payments processing business where it will take on Square and PayPal (PYPL) in their core businesses.

As Kabbage eyes expansion into Square’s payments turf, British fintech startup Revolut is gearing up to challenge it in the broad area of banking services. Revolut plans to apply for a banking license in the United States, joining Square and technology companies that are also seeking banking licenses in the United States, according to Reuters.

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Amazon is eyeing expansion into banking services

Amazon (AMZN) has also been linked to plans to offer more banking services in addition to processing payments and lending to traders on its marketplace. The e-commerce giant has reportedly held talks with JPMorgan Chase (JPM) and Capital One Financial (COF) about launch a checking-account-like product for its customers.

Amazon, PayPal, and Square all have credit arms through which they extend loans to their customers.

Apple to launch Apple Pay card

Kabbage, Revolut, and Amazon are not the only companies raising stakes in the fintech industry. Apple has teamed up with Goldman Sachs (GS) to launch an Apple Pay credit card, as reported by the Wall Street Journal. Apple Pay is Apple’s mobile payment service that competes with Square in the business of processing payments for merchants and transferring funds between consumers.

The rising competition could put pressure on Square to spend more on marketing expenses to drive growth or at least defend its market share. Square’s marketing expenses rose 55% year-over-year to $77 million in the first quarter, driving overall costs and expenses to $276 million, from $187.5 million the previous year.


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