Bigger, badder competitors (i.e. VISA) seem like they haven't been interested in competing with Square, and you can leverage momentum & recognition against smaller newcomers.
The last thing VISA wants to do, is take over the entire payment system. That's why they're not really attempting to compete with Square or PayPal. They could trivially buy someone like Square.
VISA's golden goose is exactly where they're sitting today: no serious anti-trust burden, massive margins, low overhead brand-based business model. The minute they start trying to own everything, the goose gets shot. Today they do $5.4b in profit on just $12.7b in sales - what can a very modest business like Square offer them on top of their massive 42% net income margins to offset the anti-trust scrutiny they'd be taking on? Absolutely nothing.
If VISA tries to take over the payment processor space, Discover and Mastercard will immediately go in for the kill on anti-trust.
Square has more recognition with the public at large - but that also has little pressure on merchant adoption. After all, you're not going to refuse to swipe your card at the coffee shop because their PoS isn't Square.
Anecdotally over the past couple of years I've seen a proliferation of other PoS systems (all iPad-based) at merchants around me that are decidedly not Square. Square may have carved out the market initially, but the vacuum is being rapidly filled with players that aren't Square.
Square more ancillary offerings are really terrible though, like their online store and loins. They are also offering more services with "hidden" fees like instant deposit which they charge an extra fee if you read the fine print. They are also losing out in online transactions with google, amazon, visa, mastercard, and amex doing half ass jobs.
The B&M marketplace is in for a big shift with the chip and pin starting to commence. I've only used it twice, but so far the machines that read them are ridiculously slow and cumbersome. I'm still waiting on my Square reader to see if they have a good solution.
This is a big pie, and Square needs to capitalize on its good start if not be overuse by the old goliaths.
The "loan" distinction is important not for semantic reasons but practical one -- they are offering small businesses cash advances. These are different from loans because they are not secured. There are no assets put up as collateral. However Square believes they can do this better than other services because they can effectively secure the advance by taking a piece of each card swipe at the merchant's point of sale system. But if the business goes under, Square has no claim on any assets.
I don't totally understand why/when merchant cash advances work, but I believe that adequately captures the 'how'.
But square appears smart enough only to give the money to people who are fairly certain to have stable enough cash flow to make it work.
On the one actual square example I've seen it looks like the repayment is on the order of 6 months, and is a total of roughly half a month's cash flow.
With the transactions, and hence Square's information, being several days ahead of the cash settlement, they might have preferential access to cash in order to recoup from a business that is about to fail.
I'd still call them a loan, just not a secured loan. An "unsecured business loan" is already an established category [1].
[1] http://www.sba.com/funding-a-business/unsecured-business-loa...
Payment processors have been active in the merchant cash advance space for a long time. What you describe (split withholding) is not new, nor is it something that only Square does. Where split withholding isn't available, merchant cash advance providers set up lock box accounts. This is not a complicated process.
Also of note is the fact that according to Square's S-1, it "fund[s] a significant majority of these advances from arrangements with third parties that commit to purchase the future receivables related to these advances."
1. Square provides merchant cash advance. This is not a loan.
2. Payment processors like Square have knowledge of a company's credit card receipts but cannot determine a company's cash flow unless they obtain additional documentation from the merchant. Calculating cash flow requires not just incomings but outgoings of cash. Payment processors obviously don't have the latter.
3. Merchant cash advance is a last-resort financing option for small businesses. Despite your implied suggestion that merchant cash advance providers have underwriting advantages over banks, there's a reason merchant cash advance is frequently the most expensive form of small business financing.
Basically, small business services of all kinds are on the table. Their job is to make it easy to run a small businesses. The first product was the little reader you put in your iPhone. It's been expanded since then, but the market is essentially "everything that small business owners struggle with".
Another challenge for Square is that their core merchants are mom & pop coffee shops or like you said, food trucks - not particularly lucrative segments.
Square's POS can never compete with full-service POS (Aloha, Micros), and even in the quick-service market there is increasing competition (Clover POS, Revel etc). That's why they've moved into payroll, HR, time-tracking, albeit the $5 per employee is ridiculously expensive for SMB's.
It's not ubiquitous here, but it's certainly common.
I don't love the lending business because it seems a bit outside their competency but I can understand continuing it since it's currently hot and they do have decent visibility into borrower ability to pay, etc.
Think of the unicorns.
tldr: Long Shopify, short Square.
But you don't build a multi-billion dollar company just there, it seems that the margins are too thin and the volume just isn't there to make up for it.
Since then, they've done their Point of Sale device (not just the dongle), which I haven't heard much about. They also have their small-business-loans side--are they a bank / lending agency? They say that it's technically not a loan, but it's close enough for me.
They also do (did?) payroll services for small businesses?
I guess when I look at them I see them with a lot of irons in the fire, but with none of them doing particularly well. To me it seems like they've tried a bunch of things, none of them has really stuck, so they want more money to...do what? Keep trying them?
Full disclosure, I worked for a company for a few years that was in a similar-ish space, so I am probably biased against them. We fought a lot of similar battles, of trying to create a margin inside of credit card margins, and I'm fairly convinced that it's not a way to scale a billion dollar business.