Wednesday, April 7, 2010

Is Square the Bank of the Future?

Square ( is a glimpse into the future of payment business models and technology and it's here now.

Banks, credit card companies *and* retailers of all sizes need to look at this very closely because it's a potential partner and a potential disruptor to today's payment systems

I believe we're seeing an evolution (if not a revolution) in mobile payments and credit card payment systems in general and here's why I think that:

Square is a payment service that allows anyone with the Square-capable device and app to accept payments anywhere.

Square takes any credit card and facilitates the transaction. At the time of the transaction, the application can act as a straight credit card processing device but it can do a lot more. According to Square's website it could let you, the retailer, know beforehand that this is a frequent customer and that 10th coffee is on the house. Later, you can see all your transactions on the web. At the time of purchase, the buyer can enter in their phone number or email address and get an SMS text or email receipt delivered to them.

But, the really fascinating component of this business model (read the fine print on the website) is that the retailer needs to set up an account at Square *and* the funds go into a Square account, to be pooled with all other Squared accounts. Notice the funds don't go to a traditional bank, at least not directly.

So Square is:
1. a potential disruptor to traditional banks because the funds aren't transferred from credit card to a bank account; and

2. a potential disruptor to customer relationship management systems because it provides high value customer relationship management and loyalty programs baked right into the service.

Last night, Square Inc sent me their latest beta tester email update...
On Tue, Apr 6, 2010 at 9:57 PM, Square wrote:

On April 3rd we opened parts of Square to the public.

The way we opened, with a focus on the US, iPad, cash, and items,
surprised a few. Here's why we did what we did.

We're testing the rails.

Building a beautiful, safe, and secure product that moves people's money isn't easy. We intend to get it right the first time, and we're taking the time to make certain everything works as expected. From taking a payment, settling to a bank account, giving a receipt to a payer, even to how we answer our toll-free number, every step and detail along the way must be beautiful, immediate, transparent, and friction-free.

As the iPad is new on the market and more optimized for traditional retail use, we can efficiently and securely ramp up our card processing and at the same time get Square in front of payers everywhere.

We want to learn.

We've been in a limited beta on the iPhone and iPod touch for 3 months. In those 5 months we've learned a lot. While giving everyone the ability to take card payments is exciting, we're even more excited about Square receipts and the analytics Square provides to all sellers. We didn't want them to be dependent on just one payment device however, so we implemented a way to give them for cash, too. The iPad presented an intriguing way to get the Square experience to more sellers and payers immediately and learn very quickly what people like, and what they don't.

We could've done better.

We weren't upfront with our plans to you, our current beta users and the massive list of folks who expressed interest in accepting cards with their iPhones. In the future, we'll be more thoughtful about reaching out to people when we edit our direction even slightly.

Thank you.

Thank you for your patience as we build Square in the best way we know how: with your feedback. The entire Square team is working hard to integrate your feedback and get the full Square experience to your iPad, iPhone, and Android device before the end of April. We're excited to discover all the ways you'll use it.

Jack Dorsey
Square CEO

Notice the comment: "While giving everyone the ability to take card payments is exciting, we're even more excited about Square receipts and the analytics Square provides to all sellers."

Square's innovation should excite you and scare you. Here's why:

Don't look at Square as just a payment service provider, although it is one.

Don't look at Square as just a valuable web-based customer relationship management service for retailers, although it is one.

Look at Square as the next huge transactional data aggregator, because it is one. Imagine Square's transactional database as it grows, being able to mine and sell location-based insights, tied to credit scoring from credit card data and detailed purchase data.

If Square grows quickly, it'll have an extremely valuable service but an even more valuable database of transactional data down to the micro-level purchase. Imagine then being able to sell that data to anyone who wants to target their next marketing campaign!

Finally, look at Square as your next bank, because it could be one. Once you have your funds on deposit there, why not open up a Square chequing account or Square Visa of your own... I imagine it won't be hard.

Now, why didn't I think of this?

Alan Wunsche

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