A decade ago with the advent of e-commerce a wave of companies promised to radically transform the way payments were accepted, from wallets to micro-payments. This year, year 0 in the new calendar of m-commerce, has seen a number of promising announcements in mobile payment from the likes of Obopay, Boku or BlingNation. Recently Square has joined the fray and showed to the world what had been whispered in the Silicon Valley circles throughout the fall.
It is politically correct to praise the new venture of a Web 2.0 innovator, especially one with backers such as Khosla Ventures. Yet I have seen many highly anticipated payments products fail to achieve their promise. So what will if be with Square?
First the positives:
- Top of all, Square does something that has proven elusive so far: make payments mobile friendly. One has to acknowledge the simplicity of the user experience and the uber-portability of the solution. If Square, ridding the iPhone waves enables acceptance of payment cards with micro-merchants, it will be a huge win.
- Second, Square is keeping the barriers to entry very low: giving away the device (with a whisper cost of under $1), making the sign-on simple, requiring virtually no set up… all are positive changes for an industry which can take days or weeks and hundreds of dollars to enable a new payment acceptor.
- Third, given the DNA of the founders, we should expect “squared” commerce applications emerging in the coming months. After all the company is showing the way with virtual loyalty cards and simple charity giving. Given the vibrancy of the iPhone environment someone will be able and eager to develop this around Square.
Without a doubt Square is therefore well positioned to challenge the providers of mobile terminals and gateway services. The Verifones of the world or startups such as Way Systems have offered solution still too expensive and inflexible for your proto-typical mobile merchant (for instance the Mary Kay reseller who wants to take payments, get it reported to her accounting software, have the order processed with the head office, get a receipt for the client, track the order later on…).
However Square also has some real challenges still ahead:
- The deployment of new payment technology is always a challenge: Take the example of IP Commerce, a Denver startup which is very smartly applying a SaaS model to manage smaller merchant acceptance and has the backing of both Microsoft and Paymentech. While it is gaining market traction, it has not developed at the speed of many other cloud based solution. I expect the same reality challenges for Square, when it starts to manage hardware, register acceptors, perform risk management, comply with a sea of regulation, things Twitter didn’t have to endure.
- The target users and associated value proposition is still unclear: The YouTube demonstration at a coffee shop makes it clear that this is not a solution for the traditional checkout: the back and forth with the iPhone over a counter is slower than cash to say the least. But this implementation can no doubt be used by my plumber, my waiter…. However a simple device that plugs into the audio jack and is cheap enough to give away, will most likely have a short life either because it will get lost easily or suffer very rapidly from mechanical wear and tear real issues in any frequent usage situation. It wouldn’t be the case for the truly occasional acceptor, but then why bother with “loyalty programs”? In all cases Square will have to contend with solutions such as that of Intuit that also offer practical card acceptance solutions.
- Finally while the payment networks may have given a nod, it is not clear under what payment service rules (card present or not) and what are terms for the assumption of merchant risk. The Mobile phones are not known for their platform security, a dissonance with the direction of the payment industry as it rushes to point to point encryption and tokenization. Meeting the security assurance imperatives of the payment brands, while maintaining a business model with very low entry barriers for the users will be an interesting challenge.
In the end though the true uniqueness of Square may have less to do with a clever way of executing mobile payments, and more with the data hoard they could accumulate: a person’s name, email address payment account, picture, possibly phone number, all validated by a payment transaction is a very valuable asset regardless of whether you are in the payments gateway business or not.
This valley falls easily to the power of hype, and its history is littered with examples of formidable innovators who could do no harm… and yet eventually proved to be mere mortals. Without prejudice for a team that delivered in record time two very interesting inventions (the card reading device and the iPhone experience), I think the jury is still out.
Agree / Disagree : Contact me at patrick.r.gauthier@sbcglobal.net or twitter: prgauthier.
Patrick Gauthier is a senior payment industry executive with 20 years of experience in developing, selling and deploying new technologies for payment and commerce, on a international basis, in private and public companies ranging from start-ups to global organizations.
