Square Might Be Making More On Transaction Fees Than Anybody Thought

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SQUARE REPORTEDLY TAKING 34% MARGIN ON PROCESSING: Citing leaked emails and internal documents, Fortune writer Miguel Helft yesterday published a detailed snapshot of Square's business health - the deepest look we've seen to date. The article appears to confirm prior reports of cash losses at Square. But Helft's article also reveals robust revenue and margins. That suggests the losses aren't driven by operating expenses, but are the result of its investments in a flurry of new products. Here are the key figures, which a Square spokesperson declined to speak with us on the record about:

• Square's gross margin on transactions, or the margin left over after Square pays other parties involved in credit card transactions their share of fees, is 34%. In other words, in a a $100 transaction, Square would collect $2.75 in revenue, but pay out $1.82 in fees and keep 94 cents for itself.
• The company is processing about $30 billion in transactions annually.
• That would put its annualized gross profit at about $300 million.
• Excluding transactions at Starbucks, which cut a deal to make Square the register system in 7,000 locations, Square's overall 2013 loss was about $100 million.
• The Starbucks deal cost Square an additional $25 million in losses last year.
• Square had about $155 million left on its balance sheet at the end of 2013

Fortune also reports that Square's recently secured revolving credit line totals $225 million, and cites internal projections that put the company on track for profitability in about a year. Square provides hardware and software that helps small businesses accept credit and debit cards on smartphones and tablets.

Square is in the midst of a big product push focused on a fast-growing suite of customer relationship management tools. Earlier this week, Square Wallet was pulled from app stores, replaced by order-ahead app Square Order, which charges a much higher processing fee. Then the company rolled out Feedback, a subscription feature that charges merchants $10 a month to receive simple customer feedback through digital receipts they receive as part of the checkout process, and allows merchants to communicate with customers to resolve complaints. (See Business Insider's detailed walk-through of the Feedback interface.) "Square is now sending over 10 million text message and email receipts a month to buyers," Square CEO Jack Dorsey tweeted.

ISIS MOBILE WALLET CLAIMS 600,000 MONTHLY ACTIVATIONS: Isis, the mobile wallet backed by a consortium of U.S. carriers, has averaged 20,000 activations daily over the past 30 days, according to a blog post yesterday by Isis CEO Michael Abbott. Isis comes preloaded on 14 smartphones from the three carriers backing it - AT&T, T-Mobile, and Verizon Wireless. (It was unclear how many of the recent activations were of preloaded wallets.) The carriers launched Isis in November 2013, in a bid to leverage their clout as smartphone distributors to win the mobile wallet race. The app relies on near-field communications or NFC, a technology that allows consumers to tap or wave their phones at compatible terminals to make a payment. The consortium was dealt a blow in recent months though with the spread of host-card emulation or HCE, a protocol that allows other wallet apps to bypass carrier-controlled hardware and power their own NFC transactions.

CONTACTLESS CARD SHIPMENTS UP: A study from the Smart Payments Association shows that shipments of contactless (or NFC) payment cards doubled from 2012 to 2013. Asia Pacific, where shipments grew 193%, led the growth. The study noted that 94% of NFC cards also incorporated EMV chips - the security standard widespread in Europe and Asia, and set to roll out in the U.S. by the end of 2015.

iBEACON PAYMENT EXPERIENCE?: In a speculative but deeply researched blog post, payments veteran Tom Noyes runs through his prediction for what an Apple-powered payment experience would look like. Among Noyes' predictions: it will involve beacons, the iPhone's fingerprint reader, and tokenized security. He believes the latter will necessitate incorporating NFC. Noyes predicts these capabilities will be built into the iPhone 6 that's due out this year.

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