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The Ratings Game: Threat to Square from a potential Apple iPhone payments capacity is ‘overblown,’ analysts say


Shares of Square parent Block Inc. are taking a hit Thursday amid fears of a new threat from Apple Inc., but at least one analyst says the concerns seem “overblown.”

The company, which recently changed its corporate name to Block SQ, +4.49% but retained the Square name for its merchant business, got its start by making it easier for small businesses to accept card payments with simple hardware that could plug into an iPhone or iPad. Now, Apple AAPL, +6.98% itself might be planning to take that concept a step further by allowing businesses to take in-person, contactless payments without any special hardware at all, according to a Bloomberg report.

This possible new Apple feature presumably would make use of the near-field communications, or NFC, readers embedded in an iPhone, and the company could introduce it as a software update in the coming months, according to the report.

Apple didn’t immediately respond to MarketWatch’s request for comment on its plans.

Block shares are off 5% in Thursday afternoon trading.

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It’s unclear whether Apple ultimately will roll out such a payment service, or how it would execute such a feature if it does indeed proceed. Bloomberg notes that the company could require those making use of the feature to take payments through Apple Pay, or it could allow other payments players like Square to use the iPhone’s NFC technology.

The first option “admittedly” is more in keeping with Apple’s style, according to Barclays analyst Ramsey El-Assal, and that option would be “a more competitive approach.” But he isn’t sweating the report too much, writing that concerns about Apple’s possible plans seem “overblown,” in part because it’s not obvious whether Apple would see much success.

Merchants can already get inexpensive payment acceptance dongles, and even fancier hardware, for less than the price of an iPhone, he noted. “This likely limits the utility of an iPhone-only acceptance approach to sole proprietors and very small micromerchants,” according to El-Assal.

Bernstein analyst Harshita Rawat wasn’t fazed by the reports either. “This may sound like a big deal, but it is not, in our view,” she wrote.

Samsung rolled out a similar feature on its phones back in 2019, and “we haven’t heard much since then,” she wrote.

Additionally, the NFC reader would only work with contactless transactions. While adoption of contactless payments is growing in the U.S., they still make up a minority of face-to-face transactions, Rawat said. She doubts that many merchants would want to commit to a payment-acceptance method that doesn’t line up with the dominant way that U.S. shoppers like to pay.

Wolfe Research analyst Darrin Peller highlighted how Square’s business has come a long way since the launch of its card readers. The company “has been gradually transitioning its value proposition for Sellers from hardware acceptance tools towards its broader ecosystem,” he said in a note to clients.

Square software offerings in areas like payroll and invoicing can “help ward off competitive threats from Apple and others,” he said. They also offer financial benefits.

And all three analysts pointed out that Square has been making a push upmarket, such that micromerchants have come to represent a declining part of its overall volume.

Shares of Block have lost 58% over the past three months, as the S&P 500 SPX, +2.43% has dropped 5.5%.

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