Tag Archives: Square

Opportunities that will enable Square to significantly grow Pay with Square

I’ve written about online and mobile payments before. It’s a young industry with still a lot of room for growth. I came across a few articles about Pay with Square. Based on my personal experience, I am bullish on this new way to pay. Some people believe Pay with Square is ahead of its time, but I think it has the potential to fundamentally change how we pay at the cash register. To me, that’s super exciting. Anything that can reshape culture or established norms gets me excited.

If I were on the team at Square running the Pay with Square (“PWS”) program, here are a few things I would do to ensure that it is a mega hit and goes mainstream.

1. Increase the size of merchant base through strategic partnerships.


Square has many fans (and I am one of them), but the chief complaint I’ve heard is that not that many merchants give customers the ability to use Pay with Square. To address that issue, Square should form strategic relationship that will quickly bring on board thousands of merchants.

Square has grown tremendously over the last 1-2 years. Its current strength is with local small to medium sized merchants, but there’s no reason why it couldn’t pursue opportunities on a regional or national level. Square may have to lower its rate slightly in order to work with large retailers that have higher ticket items, but its 2.75% fee is very competitive for lower-ticket items, such as donuts, coffees, most goods at convenience stores, etc.

I lived in Boston for nearly 10 years. One thing it’s known for is Dunkin’ Donuts. They are everywhere. In fact, there are about 2,000 Dunkin’ Donuts in the Boston metro area. What’s interesting is that a lot of these are kiosks inside the T or Commuter Rail stations. I remember missing the T during a morning commute once because I had to wait for the cashier to print a receipt I had to sign. Square should partner with Dunkin’ Donuts and enable its patrons to Pay with Square.

Bottom line: Square should accelerate merchant acquisition by developing strategic relationships with a network of retail stores or franchises, such as Dunkin’ Donuts. I am sure there are plenty of other examples, but I think I am in the mood for doughnuts right now so that’s what came to my mind first. I think where Square can really shine is high-traffic, quick turnover retail shops with simple menus.

2. Provide incentives to merchants to promote Pay with Square to their customers.

Square must use both push and pull strategies to drive adoption. Once it acquires merchants through partnerships, Square must keep them accepting Pay with Square. To do this, the PWS team should work with the Marketing team to design a marketing program that incentivizes merchants to promote PWS to their customers. For example, Square might consider reducing its fees for merchants that meet a minimum PWS transaction volume each month or create attractive loyalty programs for PWS users. The reduced fees give merchants a monetary incentive to promote PWS to their customers. I talked to a few merchants who use Square and they didn’t seem to really care to promote PWS to their customers. Of course, the PWS team would need to run the numbers with the Marketing team to figure out what’s optimal from a financial perspective.

Now, here are some ideas for what I think Square should to do continue to grow its users.

3. Partner with mobile device manufacturers to get the Pay with Square app pre-installed on phones.

This partnership could take some time to put in place, but it would be a fantastic way for Square to accelerate user adoption. My guess is that Square is already looking into this. It should target Apple, Samsung, LG, etc to get the PWS app pre-installed on mobile devices.

The basic pitch here is that consumers are buying a phone that has “money” in it in the form of bonus credits from Square. Square should give a generous amount like $20 to a new user who signs up through the pre-loaded app. So if you buy a $200 phone, it would actually cost only $180 because you are getting $20 from Square. At the time of setting up their phone, users would be prompted to sign up for an account to activate their app to redeem their bonus.

To convince the OEMs to get on board, Square should do a rev share on the transactions from the pre-loaded app. Users will want to link their info with the app to claim their bonus credit and OEMs will push the users to register because they’ll want to get a cut of the transactions. Obviously, Square would need to run the numbers to figure out the optimal approach (i.e. rev share amount, bonus cost, potential cannibalization, etc.).

4. Work with the Product team to build features that will encourage more frequent usage.

Getting new users isn’t enough. Square needs to get them to use the app frequently. One product feature I would like to see is the ability to add multiple credit cards and other payment methods, such as gift cards or coupons. This would give users a reason to use PWS everyday because they would truly be able to leave their wallets at home. By allowing users to load the PWS app with additional credit cards, coupons, gift cards, etc. Square can become a true “e-wallet.” In fact, this feature might be necessary if Square wants to work with a national retailer and allow them to accept coupons or their branded gift cards (e.g. Dunkin’ Donuts gift card). This may be slightly outside the scope of PWS team’s job description, but it’s a feature I’m sure they would love to talk to merchants about.

By: Jonathan Lee
Twitter: @hi5at5


Innovations in the payments space are accelerating the extinction of cash

I have several payment apps, including PayPal, Square, Card Case, Serve (American Express), and Dwolla on my HTC Inspire. They are similar in that they all facilitate payments, but are also dissimilar in that they serve different purposes. I’ve been using PayPal for years and I’ll probably continue to use it, but I am a big fan of Square as well. I haven’t been using Serve and Dwolla for too long, but I’m playing around with them to learn more.

I’ve been reading about various opinions on what will be the next big thing in the payments space. Will it be Google Wallet? PayPal? Square (and Card Case)? Maybe even Dwolla? I think that all depends on the consumer, merchant, and the transaction type because, as I said earlier, these solutions serve different purposes. While they are all different, the commonality with all these companies is that they are making hard currency obsolete.

Dwolla— will it kill credit cards?

While I think Dwolla offers a unique product, my humble opinion is “No, it will not kill off credit cards.” Dwolla is great for merchants in that it’s cheap, but it’s not solving any real problems for the consumers. It will have to give me an incentive to use this for my everyday shopping experience before I can be convinced to dump my credit cards, which give me loyalty points or cash-back.

Dwolla is relatively simple to use, but it doesn’t offer me any incentives or consumer protection. It will need to give me something to change my behavior that’s been ingrained in me for years.

However, I do see this as a great tool for peer-to-peer money transfer or for those who do not have credit cards or prefer not to use them in certain instances. For example, I love how I can pay my friends through Twitter using Dwolla.

Having worked at Rixty, I have become more knowledgeable about the cash-spending consumer segment. According to a Federal Reserve Bank of Boston research in 2009,

more than 40% of consumer transactions are still made via cash, check or electronic bill payment, not with a credit or a debit card. About 70 million Americans are under-banked, yet spend $1.1 trillion each year in cash.

Those are some astounding figures since I hardly carry more than a few dollars in cash in my wallet. And since Dwolla is skipping credit cards altogether, it could tap into this huge cash-paying consumer segment. There’s a lot of money out there. Making it economical, safe, and convenient for consumers to make online purchases with cash or transfer money could be a very lucrative business.

Square— the next step in credit card processing?

Critics of Square say that what Square is doing isn’t all that revolutionary, that they are just making incremental changes to the status quo. Even if that were true, so what? It’s ridiculously difficult to change established consumer behavior. And why change it if what’s in place isn’t all that inconvenient? Proponents of alternative payments say that credit cards are costly to businesses and consumers because merchants have to pay nearly $50 billion annually in transaction fees and that the fees are ultimately passed unto the consumer. Yes, that’s a lot of money but that tells me that consumers are happy to be swiping away. It’s difficult to get them to switch to something totally different. They like their plastic cards, whether they are literally swiping it or punching in their numbers.

What I love about Square is that they are enabling small merchants to easily and economically accept credit payments without the hassle. For example, there are many street fairs in San Francisco and most street vendors only accept cash payments, but I am seeing an increasing number of them starting to take credit cards via Square.

With Square, small merchants don’t need to deal with complicated credit card contracts or hidden fees. All they need is a free Square dongle. No wonder more than 800,000 merchants have signed up with Square and have processed more than $2 billion in payments in the last 12 months.

Even with the ubiquity of the Internet, more transactions are done offline than online, and Square has the potential to be a leader in this space.

In addition to making it easy for merchants to accept payments, Square also helps them track loyal customers. That’s obviously great news for customers as well. Square’s loyalty program therefore incentivizes both the merchant and the consumer. That’s a smart way to drive adoption from both ends. It puzzles me that credit card companies and payment processors have not offered this service to merchants before. Not only did Square nail it with its loyal program, but it’s bringing customers closer together with merchants through Card Case, which allows users to open a “tab” and pay just by giving their name. Now that’s innovation!

I am eager to see whether Jack Dorsey truly does have the Midas’ touch. I admire his entrepreneurial aptitude and insane drive.

Google Wallet— Is NFC here yet?

Google says,”In the past few thousand years, the way we pay has changed just three times– from coins, to paper money, to plastic cards. Now we’re on the brink of the next big shift.” I absolutely love Google for making such bold claims. I love crazy ideas and Google doesn’t have any trouble coming up with them.

Google Wallet is an Android app that turns your phone (Nexus S for now) into a wallet. You can store your card information on your phone. When you want to pay, all you have to do is tap your NFC enabled phone.

Wildly simple, right? The big problem here is infrastructure. It’s a Catch 22. Until merchants are equipped to take payments from NFC devices, consumers won’t have much reason to have an NFC enabled mobile phone and merchants aren’t likely to embrace NFC until they know that consumers are able to pay via NFC. I do believe, however, that new payment methods must be adopted by merchants first before they can be embraced by consumers.

In other words, introducing a new payment method is more of a sell-driven proposition. For this to succeed, Google will have to assist with the roll out of NFC readers at major retail channels.

I see this happening at my local Peet’s Coffee so it appears Google is going about this the right way.

Also, the success of Google Wallet or NFC payment in general will depend much more on the mobile phone manufacturers’ willingness to bet on this technology as a standard method of payment than consumers’ decision to adopt it. If it comes with my phone, then I’ll use it when I see a merchant who has the ability to take payments through NFC. However, I am unlikely to go buy an NFC enabled device to push my favorite stores to let me pay with my phone.

While Google is betting on NFC, it’s not focusing only on the technology. It’s focusing on using technology to add value to credit card users and making all kinds of transactions more streamlined. What do I mean by that? Because Google Wallet is a virtual wallet, it can store multiple credit cards, coupons, and probably eventually even ID cards. Think about this application beyond payments: When you are trying to get through security at an airport, you currently have to take out your wallet, take out your ID, show the TSA agent your ID, put your ID back in your wallet, and then put your wallet back in your pocket. That’s messy. Eventually, you might be able to just take out your phone and tap it to an NFC reader and then your face and boarding pass information might be displayed on a screen for verification. That’s simple. Google Wallet isn’t just about payments although I am sure that’s the primary purpose and it’s easy to think of similar applications for monetary transactions.

The million dollar question is, “When will NFC become mainstream?” Square COO, Keith Rabois doesn’t seem to think NFC will become mainstream with most Americans any time soon. I think he’s at least partially right. NFC alone won’t become mainstream. I think traditional swipes will co-exist with NFC just like credit and debit cards co-exist with cash today.

Square’s value proposition is that it turns any smartphone into a credit card reader. Google Wallet’s value proposition isn’t just that it uses NFC to transact payments, but that it uses the app to organize payments for the consumers by leveraging NFC.

There’s an important difference. If Google used NFC to try to replace swipes, that’s not very innovative. It’s only a very costly alternative that requires new infrastructure. Most likely such attempt will fail. Google has many tools to combine users’ spending data with location based services. Google will be able to track users’ spending data across various payment methods and learn a lot about their spending habits. Information is valuable and can be monetized. Think of Google Wallet as Google’s way of collecting our shopping data even when we’re offline. That’s incredible.

Bottom line: I see Square becoming insanely big. It has the potential to be bigger than the current version of PayPal because of its simplicity and cost-effectiveness for the merchants (But let’s not kid ourselves. PayPal isn’t going to just sit and watch; it’s going to evolve.). I see a potential in Dwolla as well for its ability to cheaply transfer funds between two parties. And I see a huge upside for Google Wallet because of its ability to replace the bulky wallet and use consumer spending data to better target ads and offers (even in real-time). As payments companies keep innovating, we’ll eventually see the extinction of hard money. My guess is that my next generation will have to go to the museum to see cash and coins.

By: Jonathan Lee
Twitter: @hi5at5