Is Square’s Focus on Bitcoin at Odds With its Goal to Deliver Financial Inclusion?

Square has always put financial inclusion is at the heart of its mission. Whether it can get there on bitcoin alone is another question.

The first line on the “About Us” page of the payments company started by Twitter CEO Jack Dorsey begins, “We believe everyone should be able to participate and thrive in the economy.”

And Square has put its money where its mouth is, announcing a $100 million fund to invest in minority and underserved communities in September 2020, putting $75 million into supporting financial institutions in minority, low-income, and disadvantaged communities. This June it added $10 million to the Entrepreneurs of Color Fund and $10 million to international organizations working with minority and underserved communities.

The final $5 million went to the Square, Inc. Bitcoin Endowment, an international fund focused on educating about and increasing adoption of bitcoin “in historically under-resourced communities across the globe” — paid for with earnings from the $220 million it spent buying bitcoins in late 2020 and early 2021.

“From those with no credit history who cannot open bank accounts, to people living in places with limited access to banks, to populations that have historically been discriminated against, bitcoin can help level the playing field and build a more inclusive future,” Square said on June 9.

Square has put underserved populations at the core of its financial services. Its Square Financial Services division launched in March, after obtaining a de novo industrial bank charter from the Federal Deposit Insurance Corporation (FDIC), allowing it to offer business deposit products and loans directly.

Read more: FDIC Approves Square For Banking License

“Bringing banking capability in-house enables us to operate more nimbly, which will serve Square and our customers as we continue the work to create financial tools that serve the underserved,” Square Financial Services CFO and Executive Chairwoman Amrita Ahuja said at the time.

Bitcoin First

One issue is that Square takes its lead from Dorsey, who has been single-mindedly focused on bitcoin — which he has said he believes will become the internet’s native currency — to the exclusion of other cryptocurrencies. BTC is the only crypto Square Cash App users can buy and sell, unlike PayPal, which also supports ether (ETH), litecoin (LTC), and bitcoin cash (BCH).

There is some reason for this, most notably that bitcoin is far more widely recognized than any other cryptocurrency, and thus more likely to be accepted by merchants in poorer and more underserved communities. It’s no coincidence that Venezuelans turned to bitcoin in the past few years when their economy collapsed, or that El Salvador chose BTC as its new crypto legal tender.

But bitcoin has more than a few problems as a currency, notably price volatility which sends the price up or down as much as 5% or more in a day on a fairly regular basis. Particularly in poorer, underbanked communities where merchants have particularly low margins, that can be a blockade to adoption. And transaction fees are far too high. In November, the average transaction fee ranged from $2.36 to $4.69 — too much for a coffee at Starbucks (if it accepted bitcoin), to say nothing of buying or selling food in a very poor community. And they can go much higher at peak times.

Bitcoin cash transaction fees are generally around a quarter, and litecoin’s are 2 or 3 cents. Other cryptocurrencies like XRP (often called Ripple) charge a tiny fraction of a cent.

Beyond Bitcoin

Still, the company’s single-minded focus on bitcoin may be changing. Last week, Square announced plans to create a decentralized bitcoin exchange, tbDEX, that will act as an on- and off-ramp between cryptocurrencies and nationally-issued fiat currencies like the dollar or euro.

Saying the world is “at a crossroads in our financial system” the exchange’s white paper argued that cryptocurrency “unlocks the potential for a future where commerce can happen without the permission, participation, or benefit of financial intermediaries.”

This is particularly true, it said, for the 1.7 billion adults around the world who “lack access to the banking system, yet two-thirds of them own a mobile phone that could help them access financial services … [and] create a world that empowers individuals — one in which the right to engage in payments is neither subject to proving creditworthiness and the ability to pay account fees.”