Fintech

Apple's new payments tech won't kill Square

It could be used in place of the Square dongle, but it's far short of a full-fledged payments service.

Someone pays with their phone via Square

The Apple system would reportedly only handle contactless payments.

Photo: Nathan Dumlao/Unsplash

Apple is preparing a product to enable merchants to accept contactless payments via iPhones without additional hardware, according to Bloomberg.

While this may seem like a move to compete with Block and its Square merchant unit in point-of-sale payments, that’s unlikely. The Apple service is using technology from its acquisition of Mobeewave in 2020 that enables contactless payments using NFC technology.

This technology could be used in place of the Square dongle that Jack Dorsey’s company was originally known for, but it isn’t by itself a payments service. It’s just the means to get credit card data into the phone.

Square, meanwhile, provides hardware, but for many merchants that’s no longer a dongle but a larger countertop device that’s more of a replacement for a cash register. Many small businesses, particularly brick-and-mortar establishments, use devices like the Square Register or Square Stand that connect to iPads.

In terms of what a merchant needs to run a business, Block’s Square unit also provides software to run a virtual register — storing everything from menu items to prices to inventory, accounting for sales tax and tips, and generating a receipt — and various services such as banking, payroll, loans and invoices. For Block, micro-merchants only make up a third of its gross payment volume, said Harshita Rawat, senior research analyst at Bernstein.

But the service could be helpful for Block and other payments companies, like PayPal, in that it could enable smaller merchants to more easily accept payments without needing a separate piece of hardware. And hardware is typically a loss leader used to sell more profitable payments services.

The Apple system would reportedly only handle contactless payments, not chip or magnetic-stripe cards. Contactless payments are only about 20% to 30% of face-to-face transactions in the U.S., so not too many merchants would get rid of other hardware and go with Apple's contactless service alone, said Rawat. But it could facilitate payments by roving employees, for example, to shorten lines while directing customers paying by cash or physical card to a register. (Apple uses such an arrangement in its retail stores.)

It’s unlikely Apple will seek to get into the payments business directly, and is more likely a move to drive iPhone sales, Rawat believes. Samsung launched a similar feature in 2019 and it didn’t go anywhere. And a more direct move to tie a payments service to Apple hardware could trigger action by regulators, given Apple’s already massive scale on the consumer side of payments.

Apple has been moving aggressively on the consumer side with Apple Pay, its phone-based payment service, which did an estimated $90 billion in stores in 2021. It’s also expanding its Apple Card with a planned “buy now, pay later” service.

But Apple historically has had challenges in building out services aimed at businesses: Filling out the full range of payments services and software that retailers need wouldn’t be a natural move for Apple.

In short, Dorsey can breathe easy.

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Issie Lapowsky

Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

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Joe Williams is a writer-at-large at Protocol. He previously covered enterprise software for Protocol, Bloomberg and Business Insider. Joe can be reached at JoeWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

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O said watching the U.S. lag in tech policy — even as some states pass their own measures and federal bills gain momentum — has made him worry about the EU and U.S. decoupling. While not as drastic as a disentangling of economic fortunes between the West and China, such a divergence, as O describes it, could still make it functionally impossible for companies to serve users on both sides of the Atlantic with the same product.

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