Square faces multiple challenges that contribute to its unprofitability. Firstly, its primary customer base consists of businesses that are often unprofitable for payment processors, especially since the implementation of Durbin debit regulations. These regulations significantly increased the processing costs for small-ticket sales on most debit cards, further impacting Square’s profitability.
Additionally, Square operates with a no-underwriting business model, meaning they accept virtually any business without pre-qualifying them. While this approach appeals to many, it exposes Square to a higher risk of fraud. Other payment processors typically pre-qualify businesses to mitigate this risk. Square’s low barrier to entry also attracts illegal transactions such as those related to prostitution and drugs, which carry a higher risk of fraud and chargebacks.
Overall, while Square’s business model offers accessibility and convenience, it also exposes them to significant operational challenges and potential losses, contributing to their overall lack of profitability.
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