Per the blog post from Square/Block:

The Square Credit Card, running on the American Express network, gives sellers a new, yet familiar tool that provides them with more spending flexibility when they need it and a rewards program that helps them reinvest back in their business. With no late fees or annual fees, the Square Credit Card features a credit limit determined by the sales a seller processes through Square, growing as their business grows, and rewards them with free card processing every time they spend.

A quick look at the Square Credit Card product page will offer a bit more information on the product:

• Credit Limit: “Your credit limit is determined by your history with Square and is based on a number of factors, including your Square processing volume.”
• APR: “Your interest rate can go up or down if you have significant changes in your Square sales.”
• Rewards: “A rewards system designed to help you put more money back into your business. Earn free processing every time you spend with the Square Credit Card. And never pay a fee for late payments, annual renewals, or anything else.”
• Potential impact on credit score: “Square Credit Card will not affect your personal or business credit score — not when you apply for a card, and not even when you miss a minimum payment.”
• Eligibility: “If you have an active Square Credit Card, you won’t be eligible for a Square Loan. If you have a current loan with Square, or an active loan offer, you won’t be eligible for a Square Credit Card.”

Let’s unpack this thing

Benefits to merchants

It’s all about helping merchants improve cash flow. Instead of splurging cash on purchases right away, an SMB can put them on this credit card and take time to pay off the the balance. The smaller a business is, the more important it is to have better cash flow. In addition, there are rewards from this card, even though the details are not clear. Normally, a merchant has to take on processing fees for a credit card transaction. In this case, what does Square mean by “Earn free processing every time you spend with the Square Credit Card”? I’d assume that the earn rate on each transaction will be equal to the processing rate that the merchant has to pay. It sounds…ok, albeit unnecessarily complex.

Benefits to Square

Square makes money on every transaction that it processes on behalf of merchants. It’s in the company’s best interest to retain existing partners, help such partners grow their business and expand the merchant base. This new credit card is a good tool to achieve such objectives. If a merchant is interested in this card, working with Square is an absolute requirement. Based on the fine print mentioned above, it can be inferred that the longer a merchant stays in the Square ecosystem, the more favorable the terms (APR, credit limit) are.

Moreover, as the issuer of Square Credit Card, Amex will have to compensate its partner, making this card another nice revenue stream for Square. As a reference, Target made around $750 million from its credit card deal with TD Bank. It may not be that much right off the bat, but hey, even $5 million is a great boost to Square’s bottom line!

Is there any “gotcha”? Of course, there is

According to the product page, Square will deduct a small percentage of a merchant’s daily sales if the merchant misses a payment. This stipulation acts as a deterrent to stop merchants from behaving irresponsibly and, in essence, is not much different from a late fee. There is nothing wrong with constructing a credit product that way. I just think it’s convenient for Square to ignore such an important feature in its marketing materials. Merchants should be aware of this.

How competitive is this card?

The biggest advantage of Square Credit Card is that merchants can manage their Square Credit Card right from their Square Dashboard. No need to juggle between apps. The firm advertises a smooth application process, but it remains to be seen.

There are a lot of business credit cards on the market. The lack of details on important aspects such as credit limit, APR or rewards makes it challenging to do any sort of comparison. Based on the generic descriptions that Square offers, I don’t see any unique feature from this card. Also, I take a point off the board for Square Card because it deducts daily sales after a merchant misses a payment. I understand the rationale behind that feature. I just find it unfriendly to merchants.

It makes me think of PayPal…

The launch of this product from Square begs a couple of questions: 1/ why didn’t PayPal think of it? and 2/ when will PayPal announce its own version? PayPal competes with Square for both in-store and online merchants, especially with the arrival of iZettle and PayPal Complete Payment Platform (PCPP). I am not suggesting that a merchant credit card is the deal breaker when it comes to choosing a payment processing partner. There are other significant factors at play. However, it’s still important to be feature parity and not to give your rival any advantage. And the fact that Square continues to innovate and introduce features that PayPal doesn’t have shows that the iconic company needs to be more aggressive and serious about product innovation.

And Marqueta

Marqeta has been a long-time technology partner of Square, powering Cash App and Cash Card. With such a track record, one should expect the collaboration to continue and expand to Square Credit Card. However, the involvement of Amex is not the vote of confidence from Square and doesn’t reflect well on Marqeta’s capabilities. In fact, folks that I talked to and had first-hand experience with Marqeta and its know-how in the credit card space were very disappointed. Therefore, I am not surprised that Square skipped its long-time partner for Amex.

Look, it’s possible that Square is a tough client and the smaller fintech firm just didn’t want to make too many concessions. However, if I were a betting man, I would not bet on Marqeta’s prospect of entering the credit-card-as-a-service space.