Mobile

Square now gives merchants next-day access to cash, annual payment processing hits $5B

NOTE: GrowthBeat -- VentureBeat's provocative new marketing-tech event -- is a week away! We've gathered the best and brightest to explore the data, apps, and science of successful marketing. Get the full scoop here, and grab your tickets while they last.

Life just got a bit rosier for merchants using Square’s mobile credit card reader. Merchants will now have access to cash on sales made before 5 p.m. by the next business day — meaning they won’t have to wait several days before getting access to their money, as they would with competitors PayPal Here and Intuit’s GoPayment.

Additionally, the company is now processing $5 billion worth of transactions at an annualized rate, Square chief operating officer Keith Rabois told Bloomberg in an interview. That’s up from a $4 billion per year rate a month ago.

“Sole proprietors and small businesses live and die by their cash flow,” Rabois told Bloomberg. “They don’t have access to capital; banks don’t give them loans. They need to take the money they make today and use it to pay bills, buy things and pay employees the next day, so having access to funds is super-crucial for them.”

While PayPal and Intuit are competing with Square by offering lower transaction fees and integration with other software (like Intuit’s financial suite), Square has an ace card with the promise of next-day payments. It’s a huge leap forward for payment processing, and for cash-strapped small businesses besieged with bill deadlines. For those businesses, this could be the difference between staying in business, or shutting their doors.

Square, coyly, isn’t revealing how it’s managing to move cash to merchants so quickly, due to competitive reasons. I don’t blame the company for keeping this secret — it’s a major feature that its competitors have somehow never figured out. (It’s especially embarrassing for PayPal, since it’s been handling online payments for over a decade.)

As Bloomberg points out, the past method for handling credit card payments through payments processors had several steps that delayed merchant access to cash. Payments were first evaluated for risk exposure, sent to the merchant’s bank, and then sent to a national network (or clearinghouse), before they reached a merchant’s bank account.

Square has released a handy schedule that shows when merchants can expect to see transactions in their bank accounts.

We’ve asked PayPal for comment on Square’s announcement, and will update when we hear back.