HandyNYC owner Tommy McGhee has been using Square's(SQ) - Get Report  mobile credit card reader in his construction, renovation and design business for more than a year. He likes it so much that he dropped other services like PayPal(PYPL) - Get Report .

"I was using a variety of different mobile transaction apps," McGhee explained in a phone interview.

Square, which provides a small electronic device that can be attached to smartphones and tablets to read credit and debit cards, "is my go-to with regards to transactions now because to me, it's just much simpler," he said. "It's cleaner." 

Despite praise from merchants like McGhee, however, Square stock has climbed less than 1% since going public in November. That's better than the broader S&P 500 financials index but not as good as PayPal's 2.1% gain, and it reflects the challenges facing the San Francisco-based payment processor in an industry that may be worth more than $2 trillion by 2020. 

While Square sales grew 51% to $379.2 million during the first quarter, operating costs surged, too, leading to a net loss and prompting investor concern about profitability. 

"We believe Square has to strike the right balance between investing for growth and delivering improved profitability," investment bank Piper Jaffray, which has a neutral rating on the stock, said in a note to clients. Other risks include competition, the need to expand its distribution model to reach more merchants, and slowing innovation, the firm said.

"They are growing the top line at a very fast pace, but they are also growing expenses at a very fast pace," said Piper Jaffray analyst Jason Deleeuw. "That's been the knock on it so far."

The Square Capital lending business, which competes with online creditors like Lending Club(LC) - Get Report , may be worrying stockholders, too. The fintech lending industry was jolted earlier in May when Lending Club CEO Renaud Laplanche resigned after irregularities in the sale of a small portion of loans to investors, and the firm's stock plummeted.

Square stock had seen its biggest drop of the year, 22%, just days earlier after reporting delays in adding two new investors because of "more challenging credit market conditions."

"We think there's been reverberations that have impacted Square's stock," Deleeuw said.

Still, the company is poised to benefit both from technological disruption in the payment processing industry, the source of most of its revenue, and popularity with users.

"We're in a period of unprecedented innovation in payments," Jason Oxman, head of the Electronic Transactions Association -- which represents more than 500 companies offering electronic payment services -- said in a phone interview. "For the first 40 years of our industry's history, the magnetic stripe on the back of a plastic card was the most innovative payments technology."

Square is "benefiting a lot from the fact that the whole industry is moving away from mag stripe and towards authenticated payments," CEO Jack Dorsey, who also heads Twitter(TWTR) - Get Report said on a first-quarter earnings call. 

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Square has "the fastest reader on the market" for chip-enabled cards, Dorsey said. Such cards, which the U.S. began requiring last year, provide greater security but typically take longer for merchants to process than their magnetic-striped predecessors. 

"We beat the industry average by seconds, and we think we can get even more speed gains," Dorsey noted. "The reason that speed matters is because it allows our sellers to see more customers and their customers to wait less around a payment."

McGhee agrees. As a handyman, he says, he doesn't have time to sit in front of a computer.

"The transactions are made very quick, so it works from both the client's perspective and also from my perspective," he said. "The interface with it, I find, is very simple."

Kylie Monagan, manager of modern Greek restaurant Amali Mou, has been using Square's point-of-sale service as well as its time-clock functionality for tracking employee hours for the past 10 months.

"Every time a transaction is made, Square will email the guests and elicit feedback which is extremely helpful for us," she said. "In terms of ringing people in and guest interaction, it's basically perfect right now."

Monagan's shop is one of 20-plus food vendors at Urbanspace, near New York's Grand Central station, who use Square every day.

It "takes very little training, if any at all," she said. "Employees ring up a guest, they punch in the order similar to a screen at McDonald's, it's so simple. It's very seamless, very easy to teach, and super intuitive."

In the future, Monagan said, she'd like to see more "robustness" in Square's time and attendance features. As for McGhee, he's less than thrilled with costly fees for transactions of $5,000 or more and the increased expense associated with handling out-of-state clients, whose transactions must be entered manually.

Currently, Square charges merchants 2.75% for swiped transactions, 2.9% plus 30 cents for online store and website interfaces developed externally and 3.5% plus 15 cents for manually entered transactions, according to the company's website.

"The service that Square provides is good for some merchants and not good for others," Oxman said. Among its strengths is that it enabled so-called micro-merchants to accept credit and debit cards rather than just cash and checks.

But other merchants, he said, "have more sophisticated needs for payments. They have a lot of point-of-sale technology needs, software integration or other kinds of services that may call for a more sophisticated and more robust solution."