by Aneace Haddad

PYMNTS.com asked payments industry veteran, Aneace Haddad, to weigh in on the battle brewing between VeriFone and up-start Square, and to look at its impact on the payments industry.

A recent article in TechCrunch makes it seem like a major war is on between VeriFone and Square. It is amusing how the Silicon Valley can get all hot and bothered when one of its heroes (in this case a co-founder of Twitter, Jack Dorsey) launches a new start-up.

In terms of hype and mindshare, Square is definitely running strong against VeriFone, at least in the microcosm of Silicon Valley. This may be what VeriFone is fighting. Given VeriFone's proximity, the battle of hype in the Valley might be an important one to win. Or it might be an unnecessary diversion.

I occasionally run a two-hour workshop for MBA students in Singapore called "The Art of Entrepreneurship", in which I provide a basic framework to increase the chances of success of a new project or venture. The framework applies to new startup ventures as well as projects launched within large organizations. The workshop explores several major failures that have happened in the payments industry when fundamental questions were not asked, and looks at successful products and services in comparison. Square fails the test.

Successful ventures provide simple and compelling answers to three fundamental questions: so what, who cares, and why me? Answering these questions can be difficult and painful. Take biometric payments. The promise sounded something like this: "Biometric payments let customers shop without their wallets." So what? How can I leave my wallet at home if most stores don't let me touch my thumb? How big of a hassle is it to carry a wallet? Who cares? The average shopper? Or the person out jogging who doesn't want to carry money or cards yet still wants to stop at their favorite coffee shop. Is that a big market? Do those people care enough to adopt your service? Will retailers be interested enough in that market segment? Not too long ago, a Silicon Valley company called Pay By Touch raised $340 million, hired over 800 employees, and promptly went out of business.

Does the product resemble vitamins, painkiller, or cocaine? With vitamins, buyers are concerned about their future well-being and will pay for something that could improve their lives sometime in the future. They will think seriously about ROI before buying. The vast majority of products fall into this category. With pain killer products, buyers are much less price sensitive. They are in pain now and want relief immediately. With cocaine, buyers find themselves addicted and can't get enough of your product or service. Think iPhones and social networking. Twitter is of course in this category.

"Why me?" That's the question that defines the soul of the new venture. What is your special story that makes this venture something that nobody other than you could launch? Here is Square's answer, taken from their Web site: "In February 2009, Jim McKelvey wasn't able to sell a piece of his glass art because he couldn't accept a credit card as payment. Even though a majority of payments has moved to plastic cards, accepting payments from cards is still difficult, requiring long applications, expensive hardware, and an overly complex experience. Square was born a few days later right next to the old San Francisco U.S. Mint."

The process I describe in my workshop is demanding and humbling. You ask yourself hard questions, over and over again until the answers are compelling.

"Why you?"

"Because my partner wanted to sell a piece of artwork and couldn't."

"OK, interesting. But, so what? Why you?"

"I was co-founder of Twitter. I've got lots of clout and visibility. I know everything about social media."

"OK. This is about payments. So why you? Also, what was that bit about the San Francisco U.S. Mint? What's that got to do with anything, other than maybe appeal to Silicon Valley readers?"

You get the picture.

Participants in my workshop get animated and excited when they are going through these questions. I have them work in groups of 5 or 6, and have them send one person up at the end to present their project to everyone. The class then grades each project based on how compelling the answers are. Major weaknesses are immediately apparent and can be focused on for improvement.

Square would fail this process miserably.

Aneace Haddad has been in the payments industry for 25 years. He has launched several start-ups and is the author of two payment strategy books and numerous articles. Aneace has just launched Taggo, a start-up that adds mobile tap and go convenience and one-step enrollment to membership, loyalty and prepaid programs. For more on Haddad and to check out his blog, go here.

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