Jack Dorsey Just Explained How Square Makes Money

Jack Dorsey, CEO of Twitter Inc TWTR and Square Inc SQ, recently appeared on CNBC, discussing Square's business and the surging competition in the sector with Closing Bell’s co-anchor Kelly Evans.

Square is a financial and marketing services provider, which offers payments and point-of-sale (POS) solutions. The company charges merchants 2.75 percent of each transaction processed through its technology, and takes care of paying the networks and all other elements involved in a transaction.

At the beginning of the interview, Dorsey went into Square’s growth, which is mostly organic, coming from people going to the company for its technology. “We benefit a lot from the word of mouth,” he explained.

During the show, Dorsey and Evans met with Ritual Coffee’s manager Emily Dobies, who explained that they used Square to determine the popularity of certain products and manage their inventory, and not just to process payments.

The Cost Of Starting A Company

Square posted a profit this year for the first time. So, “how do you change the economics of that, so that over time you get more of the revenue growth without so much of the costs that go along with it,” Evans asked.

“Starting any company comes with cost… and you invest in growth, and you’re betting that you can build a really healthy and self-sustaining business out of it,” the CEO responded.

Even though Square is quite diversified and into several different businesses, Dorsey divides the company into “two big buckets… how do you make the sale –so that’s payments, and then, how do you make more sales.”

“It’s a pretty tight collection of services that, most importantly, work together,” Dorsey continued, adding there are no competitors that have managed to build an experience as cohesive for the seller as the one offered by Square.

While some might argue that Square is no longer in its investment phase, but rather entering a more profits-heavy phase, Dorsey explained that he always likes to be in a growth phase. The company will continue to invest as it continues to build out its network, he stated.

There is a lot of space to grow, Dorsey assured. Not only internationally, but also in the U.S., where 20 million small businesses don’t accept credit cards yet.

The CEO then went into Square Capital, which loans money to business owners, and then takes a cut out of every transaction they make, until the debt is repaid. The take up has been “really strong,” he ensured, classifying it as one of the company’s fastest growing products. However, he continued, the loans are partly owned by Square, and partly owned by investors and banks.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.