Block Wants to Win With AI, Merchant Verticals and Banking

The return of Jack Dorsey to Square has been good news for its parent, Block.

As PYMNTS reported, former Square CEO Alyssa Henry departed the company last month on Oct. 2, with Dorsey assuming her role.

“I’m going to lead Square until we hit some significant milestones,” Dorsey said on Block’s third quarter 2023 earnings call Thursday (Nov. 2).

The financial technology company’s stock has fallen off by more than 36% in 2023 but got a decent single-digit bump Thursday after beating earnings, issuing a positive full year guidance, and announcing a $1 billion share buyback.

“We are creating an absolute cap on the number of people we have at the company, held firm at 12,000 people until we feel the growth of the business has meaningfully outpaced the growth of the company,” stated Block Co-Founder Dorsey in his shareholder letter.

And to hit that companywide growth stride, Block executives told investors on Thursday’s call that artificial intelligence (AI), a stronger focus on verticals, and leaning into banking will help it get there, and fast.

Square for Restaurants and Square for Retail were up 29% year over year, per the company’s results.

To help its focus on verticalization, as Dorsey noted, the company is doubling down to focus on faster onboarding. “We are taking too much time away from our sellers,” he said.

When asked by a J.P. Morgan analyst whether the company’s cost discipline might “hamper innovation and preclude outsize growth,” Dorsey replied that, “I think there’s even more room for innovation, invention and growth. … We were getting in our own way. A lot of silos and redundancies and a lack of desire for teams to work tougher.”

Ecosystem of Ecosystems Model

“Cash App is interesting in that it sits at this intersection of three distinct use cases: financial services, community-based P2P [peer-to-peer] transactions, and commerce … and we want to bring them together to reinvent banking for our customers,” Dorsey said.

“We started with P2P, which has inherent network effects and word of mouth, but as you receive money and see that you can also get a card and use that card at an ATM and invest in digital assets or stocks, you start to see it more and more as a bigger part of your financial activity and life.

“Our goal now is to win more of the banking use case relationship with our existing customers — ultimately getting to direct deposit and winning a majority of their direct deposit, which indicates they are seeing this as a financial home for them,” he explained.

“Everything we’ve built goes back to this idea of an ecosystem where these tools positively reinforce each other either through new features or retention,” Dorsey added.

Gross profit from banking products, which include Square Loans, Instant Transfer and Square Debit Card, was up 20% year over year.

“What really sets us apart is banking. … We see banking for us as a way of retaining our customers. Signing up for a loan, debit card or savings account helps us keep them, and we see this as an acquisition channel in the future as well,” Dorsey explained.

The company’s buy now, pay later (BNPL) platform contributed $129 million in revenue and $94 million in gross profit to Square in the quarter.

During the quarter, Block launched Tap to Pay on Android in Japan and Canada, joining six other countries across Australia, Europe, the U.K. and the U.S.

AI and Bitcoin

Executives emphasized to investors that while Block had “exceptional AI talent,” they hadn’t been “using it effectively.”

“Growth with AI means increasing the probability of positive outcomes … making everything much more efficient, and those efficiencies allow us to experiment a lot more,” Dorsey said.

“We are looking for more opportunities to automate with AI,” he added. “There’s a lot of room there.”

Asked by an analyst on the call during the Q&A section what “the role of bitcoin” was for Block, Dorsey took a moment to wax poetic.

“The reason we have a focus on bitcoin is we believe the internet will have a native currency and needs a native currency to enable micropayments globally,” Dorsey said. “We see a significant opportunity in remittance using bitcoin. … There’s no doubt the internet will need a native currency.”

“We’ll be disciplined on our bitcoin initiative,” Block’s CFO Amrita Ahuja quickly added.

As for the company’s Tidal music streaming business, and Web3 arm TBD, Dorsey had the following to say, “TBD is going to enable us to go more global. And with Tidal, we do believe there are parallels between what a musician faces and what a small business faces.”