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Square adopts Apple's Tap to Pay technology

Ryan Lawler
Illustration of a phone with a mobile payment icon on the screen, unzipping to show cards and money inside.

Illustration: Gabriella Turrisi/Axios

Square said on Thursday it was working with Apple to enable merchants to use the iPhone’s contactless Tap to Pay mechanism to accept payments through its app with no additional hardware necessary.

Why it's the BFD: For Apple, having Square as a partner brings millions of merchants as potential users of its payments infrastructure; meanwhile, Square benefits by lowering the barrier to entry for merchants to adopt its platform without having to buy its hardware.

How it works: Tap to Pay is powered by NFC, which is used by contactless credit cards and in payments made from phones to point-of-sale terminals.

  • In addition to the Apple Pay ecosystem, Tap to Pay will also support Google Pay, Samsung Pay, and other contactless payment methods on Android devices.

Flashback: When Apple announced the availability of Tap to Pay earlier this year, it came to market with Stripe and Shopify as partners.

  • That led some analysts to position the feature as a potential challenge to Square’s business, leading shares of parent company Block to decline on the news.

Be smart: At the time of the announcement, we wrote that it was in Apple’s best interests to allow Square and other app developers to offer the feature to merchants through their payment platforms — and that’s exactly what the company is doing.

  • We expect more SMB payment processors and point-of-sale systems — think Toast, Clover, Lightspeed and the like — to follow suit and adopt Tap to Pay as well.

The intrigue: Square’s hardware revenue is a very small portion of its business, and it is growing. But contactless payments could potentially improve profitability if new merchants adopt the technology.

  • In the first quarter, the company reported hardware revenue of $37 million, which was up 30% year over year.
  • However, the segment generated a gross loss of $26 million, as the company views hardware as an acquisition tool.
  • With Tap to Pay, Square could sign up merchants without first having to sell them unprofitable hardware.

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