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Why Square Stock Sank 5% This Morning

What happened

Shares of point-of-sale credit card payments facilitator Square (NYSE: SQ) fell by more than 5% Wednesday morning before recovering to a nearly 4% loss as of 1:50 p.m. EDT -- and it's not hard to figure out why.

Megabank JPMorgan Chase (NYSE: JPM) just announced that it will begin offering a "QuickAccept" feature built into its Business Complete Banking accounts -- and it's a feature that seems designed to siphon off some of Square's point-of-sale business.

Image source: Getty Images.

So what

QuickAccept permits merchants to accept payment either through a contactless card reader or a smartphone with the app enabled. Chase will charge a flat fee for transactions conducted with QuickAccept.

The service will also allow small merchants access to funds they are paid via the app on the same day those payments are made with no additional fee. Square currently charges a 1.5% fee for same-day crediting, so QuickAccept leaves it with a choice: Either do nothing and accept that Chase may be able to lure away some of its business, or eliminate its own same-day crediting fee, which would hurt its profitability.

Now what

How big of a threat does this big-bank move pose to tech stock Square?

JPMorgan Chase says it has 3 million small business customers and that "a large portion" of them will probably be moved over to its Business Complete Banking accounts, which incorporate QuickAccept. Even worse for Square, Chase is targeting the most lucrative segment of these small business customers -- those who do at least $2,000 in average daily credit card business. For these customers, says Chase, it will waive any monthly fee on Business Complete Banking accounts.

That sounds like a pretty big threat to me. Granted, we still need to need to see how well Chase's QuickAccept product works in practice, and if it's as easy to use as Square. At the very least, however, I think Square investors may be right to worry.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.


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