On the evolution of Square Banking with Christina Riechers

On our podcast, we interview some of the top minds at work building the next generation of financial services. In its work with small businesses and consumer payments, Square is definitely one of the companies that matters. 

Christina Riechers heads up Square Banking which serves about 1 million small business owners with checking, savings, and loans. She leads engineering, product, design, product marketing, operations & policy, and data science. 

For Christina, helping solve liquidity issues runs deeper than just a job.  She co-founded and led Evidence Action, a non-profit that addresses health concerns for 200M+ children annually and provides 4M+ East Africans with access to safe water. This work has a direct economic impact on their lives.

Christina’s work doing good informs her professional life and the way she looks at finance. But it also works in reverse – her experiences building at scale have proven helpful in her work building efficient charity organizations, too. It’s clear for her that providing the right tools and opportunities can make a huge difference.

Christina Riechers is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

Solving financial problems for hundreds of millions of people

Before I was at Square, I spent a lot of time abroad, really just curious about some of the big problems in the world, especially as it pertained to poor communities in East Africa and India. That took me to rural East Africa, where I was spending time with small business owners who are getting $50 grants to start up small businesses. Then it took me to India, where I was working for a solar powered lights company, which made solar powered lights for households with low electricity for $20. We found that even that was too expensive for the households we were looking to serve. So I partnered with India's largest microfinance organization to be able to finance these lights. So households would only pay $1 every week or two, to be able to afford having light at night and their households. 

And then after that, I was really intrigued by a lot of the research going on in the academic community – economists who were testing out what actually works when it comes to improving the quality of people's lives in developing countries. They had run these big randomized control trials and found incredible impact when you did something like deworming children who lived in countries where parasitic worms were a problem. 

They found that if you dewormed children using school based distribution methods, the effects over the next year would do things like reduce school absenteeism by 20%. And when they did a 10 year study, looking back at this population, they found kids who were in this treatment group for getting deworming medication had 10 percentage points higher completion of secondary school exams, for example. The men who were dewormed as children worked three and a half more hours a week. So you actually saw income effects and other things.

Some of this work is very focused on finance. But then some of the work that I took on looked looked at who you even level the playing field more from the start, and so I co-founded an organization called Evidence Action, which took some of these public health interventions that had hugely promising results on young children and what their future lives could be. We figured out how you scale that up to hundreds of millions of people a year.

Cross pollination from non-profits to financial services

I think some of the things that have taken from Square and brought back to Evidence Action have been things around focus and organizational culture. Let me give you a few more concrete examples. One thing that I loved when I started at Square was it had a focus on what it called the Four Corners, and it included things like start small, break the rules – it had the scrappy approach to how you did product development. And at Evidence Action we were wrestling with how we continue to be innovative and find the next new thing that the research was saying could have a huge impact, while also maintaining and growing these huge at scale programs.

On one hand, you have a team that is helping governments deworm hundreds of millions of children a year. And on the other hand, you want to continue being part of that pipeline of what's coming out of academia to say which of these nuggets are promising interventions that we should help wrestle with and figure out and test in the field and find partners for and scale up. So that mode of both serving existing customers with existing products, and having an innovation muscle is something that was really near and dear to my heart at Square, because it's what we're doing all the time. 

We have a big payments business and a huge lending business. And at the same time, I want my teams to continue taking those little nuggets of information that they're seeing and hearing from our small business owners and saying, Hmm, what is that unmet need that we're hearing about right now? How might we actually try to solve that and take a more scrappy approach?

So we took some of the ways that we work at Square and spent time with the Evidence Action team to separate the teams who are doing those two things, but having them closely connected enough that they could learn from each other. And once something came through the scrappy part, which we call the Evidence Action Accelerator, it had a path to maturing and scaling, if it was indeed successful.

Inside Square Banking

Square has always been at that early point of cash flow by allowing a seller to take a payment. You understand their sales coming in, you understand something about their customers. And with banking products, now you start seeing, okay, what happens after they take a sale? How do they spend that money? When do they have larger investment needs for which they might have a loan, and it helps you paint a better picture of the sellers overall – both the health of the business, as well as some of their needs and ways that perhaps we're not solving them today and where there's more we can do.

It really started from seeing the needs of the sellers. I joined Square eight years ago, and from early on, I was helping build a product we call Instant Transfers. Already with Square back then and today, sellers would automatically get their sales the next business day sent to their bank account, and that was free and part of payments. Well, we offered a product called Instant Transfers and that allowed a seller to pay an additional fee and press a button and have all their sales immediately end up in their bank account. So we launched this, and it grew incredibly quickly. I was a product manager at the time. And any product manager’s dream is to see their product just hockey stick up and up to the right, which it did. I found myself a little bit taken aback, because I was just shocked so many sellers were willing to pay to get their money immediately,

It led me down a bit of a rabbit hole of spending a lot more time with our sellers. I was going to their homes, going to their offices, trying to paint a more holistic picture of their business lives, but also their personal lives, which were often so intertwined in their business decisions. And I came to see that the sellers who were using Instant Transfers generally fell into two camps. You had one camp of sellers who were just cashflow constrained – they needed the money. Then I spoke to this one baker, who said, it was Friday, I was $200 short from being able to run payroll, and I used Instant Transfers and paid y'all $2 to get my $200 right then, and I didn't have to tell all of my hourly employees, we're living paycheck to paycheck, I can't pay you until Tuesday. 

She said that that was so valuable – I would have paid y'all $20 to be able to do that. So you started seeing the huge value that this product had for kind of an emergency cash flow tool. So that was one group of sellers. 

And then there was another group of sellers. They didn't have that same literal cash flow crunch. But when you started talking with them about their money, about their cash flow, and their finances, you could start to sense the stress building up and the insecurity they felt around the finances. People don't start a cafe because they care about accounting and cash flow.

For a lot of our small business owners, the finance piece of it was the most unsettling and the most unfamiliar and scary. And so you would find sellers using Instant Transfers just to make sure they had enough in their account. Maybe the week before, they'd been hit by a $35 insufficient funds fee from their bank, because the timing of their revenue coming in wasn't quite aligned with when a vendor charged them – that type of thing. So as I spent more time with the second group of sellers, I thought, Hmm, okay, Instant Transfers is doing something to offer them peace of mind, but it's really more of a band aid. They're struggling with these underlying issues of mismatch between their revenue and their costs, a lack of insight or understanding of when their money is coming in, or what's going to come out. We ought to be able to do better than that.

So why couldn't Square offer business banking? Why couldn't we offer better ways for small business owners to manage their cash flow and have access to their funds right when they needed it? That was the impetus to start Square Banking, and we ended up putting together a pitch deck for Jack Dorsey and the core team seven years ago, saying, here's why Square should do banking. Here's what it might look like.

Let's start with this model of giving sellers instant access to their funds since we know through the usage of Instant Transfers that sellers value that. We can do that by changing to a stored balance model – rather than being this middleman of money that goes into a bank account, we could move it into a balance at Square, and then give them a business debit card connected to that so that they can have instant access to their funds, but for free from this account. So Jack and team said all right. Go for it, grab two engineers and come back in six months. And that was the beginning of us building out Square’s debit card, which in the last few years became Square Checking, and we rolled out with a lot of other banking tools. 

How Square launches new products, functionality

We've spent a lot of time embracing the Jobs to be Done kind of philosophy that Clay Christensen helped popularize over the years, trying to understand the underlying needs of what our customers are trying to do. Not being too stuck with what they're asking for specifically, but saying, what are really the motivation and the underlying needs going on here? And what are some ways you could actually address those? I think we have the belief that if we're serving our sellers, if we're building them products that make their lives easier, that save them time, that sellers will continue choosing us to help them run more of their business.

Growth in the business

We officially launched Square Banking about two years ago. And that was bringing together what we built up of Square Checking and Square Savings and bringing that together with our lending business, which had already been active and quite popular for a number of years.

We've seen a continual appreciation of our sellers for automation. One of the most valuable resources for business owners is time, and when we're able to offer them tools that give them time back, they're grateful for it. 

One thing I like to think about is what a job description for a small business owner would look like. At Square, you can go to our job page, and we'll list your software engineering job, and here are the responsibilities, the expectations – it's kind of straightforward. If you saw a job description for a small business owner, it'd be kind of ridiculous. It would be, we're investing your own money in something that is probably not going to work out.

Demand for automation in SMB

Look at Square’s Future of Commerce report. One thing they found was that 76% of consumers said they prefer retailers to use automation technology, instead of relying on on-site staff. And that 91% of retailers plan or want to use more back end and customer support automation to decrease their staff members hands on time. You hear the sentiment is there. 

The other types of product integrations that we see our sellers using, which also reinforced this time saving element, are things like Square Savings. Square Savings is quite distinctive from what's offered at other business bank accounts. Because the way it works is a small business owner can set up what we call folders – maybe a folder for taxes,  payroll, or rent – and have a certain percentage of their sales automatically go into that folder. If you're putting aside 13% for taxes, you when tax time comes, you'll have funds set aside and you don't have to scramble at the last minute to find funds to pay your sales tax or whatever comes up. 

Or, for example, you put money into a savings folder for payroll. And then if you're using Square Payroll, you're able to automatically run your payroll when you have those funds. All these things are ways where we're increasingly saving sellers time by automating things while still giving them the control that they want.

Block’s 2 ecosystems

The Cash App business and Square share a dedication to our company's mission of economic empowerment. From there, we're both focused on different customer bases. So Square is focused on small business owners, and Cash App is focused on individual consumers. And then part of the impetus for Square Banking was a recognition that the needs of small business owners are different when it comes to their cash flow, I think what you'll see with traditional financial institutions is they might just slap the word business in front of their consumer bank account and call it a business bank account. We knew we wanted to do something different. 

So for that reason, you'll find the products that we're offering to be focused differently for our respective audiences. That said, we're always looking for areas where we can help leverage the other. I think one nice example of that is the Square debit card. We're on the same platform as a Cash App card. And so there's no reason why we can't share infrastructure to help run products, even if the nuances in product features are tailor made to the needs of our customers.

Banking priorities

There's two things to speak to. One is how we continue expanding access to credit, and then the other is focused on global. So first of all, when it comes to access to credit, Square has been quite unique in our approach to lending for small business owners. Whereas traditional lenders are looking at a mix of things to decide somebody's credit worthiness – verything from personal credit score to liquidity – Square has traditionally just looked at a seller's sales. So looking at how are you doing today? Where do we think the business is going? To assess their ability to take on credit. And when we see that, based on this mix of how you take payments, the regularity of it and the volume, we know that you're good for a certain amount, and we can proactively extend you a loan offer, and also save you time by holding back a percentage of your sales for the repayment. 

This has been hugely successful for Square. We lend over a billion dollars a quarter. And sellers love the fact that we will send them an email and say, you have a $10,000 loan offer if that's helpful for you and your business. And here's how we would automatically get it repaid. So we're continuing to build off of the success of our loans program. 

And at the end of last year, we announced a partnership we have with American Express, launching the Square credit card. So that's the kind of expansion of credit opportunities that you'll see more of with Square Banking over the next year. 

The other area that you'll see is in global. We have brought Square Loans into our global markets over the last few years and we're going to continue to do that. Because these cash flow struggles that we spoke about, those aren't unique to the US. Those are problems that small business owners around the world have. 

Even with loans in the US, we find that we're able to serve more underserved communities than you typically have. We believe the same is true and global. And so if you look at our data from 2022, more than half of our sellers who took a Square loan last year were women-owned businesses. 56% of sellers were women-owned businesses. And before taking a loan with Square, 28% of these women-owned businesses have loan applications that were rejected by traditional lenders. We think a similar opportunity to serve more women-owned businesses exists globally.