Block’s former global head of sales has noted the robustness of the fintech company’s compliance efforts following fraud allegations from short-seller Hindenburg Research last month, according to Wedbush analysts.
The analysts wrote that, during a Wedbush-hosted advisor call, the former employee pointed to Square parent company Block’s legacy of strong internal compliance, amid the Street’s concerns over rising compliance costs and increased regulatory focus on the “small bank rule” loophole.
“Our advisor believes that compliance at SQ is robust, with no signal of notable endemic in the program yielding material inflation or fraudulent accounts,” the analysts wrote in a note to clients.
“Anti-money laundering (AML) requirements are strict with zero-tolerance, so SQ’s adherence is required.
“Overall, the underlying metrics appear healthy, with room to continue monetization of Cash App users. In this context, while The Durbin Debit Amendment may require an update, this will not likely apply the same restrictions on neobanks and smaller banks.”
Regarding CashApp’s outlook, the analysts noted that monetization initiatives would be driven by connecting users from other ecosystems and products into the finance app through buy now pay later, Afterpay, creating more offers, and issuing loans.
“On the global front, SQ is well positioned to leverage its European license, capitalizing on more cross-border and intra-EU payments,” the analysts wrote.
They also wrote that Block has regained some momentum in the merchant ecosystem heading into the 2023 calendar year while noting that it has underperformed relative to its competitor Clover, a cloud-based Android point-of-sale platform.
“Growth in this ecosystem depends on whether the return on investment permits larger investment,” they wrote.
Per the advisor's information, the analysts wrote that Square may become a card issuer eventually, as it already has the capabilities and technology, but given the capital and resources required this was unlikely to be a near-term scenario.
Following the advisor call, Wedbush’s analysts reiterated their ‘Neutral’ rating and price target of US$70 for Block. The company’s shares are currently trading at US$63.95.
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