Square Aims to be Credit Card Value Disruptor

This is an update to my initial blog post (April 7, 2010): Is Square the Bank of the Future?

Today (May 11, 2010), Fast Company has published: "Square Brings Credit Card Swiping to the Mobile Masses, Starting Today"

I highly recommend this article and the accompanying article "Getting Square: A Guide to the New Mobile Credit Card Payment System for iPhone and Android" to better understand Square's business model.

Here are some highlights:

With Square, anyone can accept credit or debit card payments by downloading the app and plugging a little plastic cube into the headphone jack of an iPhone, iPod Touch, iPad, or Android phone. After a quick swipe of the card through the reader, the merchant turns the device over to the customer to sign his or her name on the touchscreen using a finger instead of a pen. The customer can add a tip, either by percentage or a particular amount, and then enters their phone number or email address. In the best case, the receipt message will buzz in the customer's pocket as an email or SMS text message while walking away with their purchase.

Customers are charged as usual by their banks or credit card companies, and Square settles up the net funds with merchants each night instead of at the end of the month. The swiper and application are both free and include access to an online dashboard with analytics that help merchants track exactly what they've been selling.

Square shares very little about you with the merchant, and doesn't even keep your credit card number on file. Although a phone number or email address is needed for the transaction, that is not shared with the merchant, only with Square. [Alan: Square can therefore become a CRM service provider] 

At the same time, Square gives the merchant just enough to recognize repeat customers and offer them incentives. In the dashboard, a merchant can customize a notifier for, say, every tenth visit by the same customer or any time a customer spends more than $100. This notification will appear on screen after the swipe and allow the merchant to offer a discount or giveaway. [Alan: Square can enable loyalty]

Is Square the Bank of the Future?

Square (www.squareup.com) 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.

https://squareup.com/features

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

alan@wunsche.com

P.S. Have we connected yet on Twitter? Please follow my tweets at www.twitter.com/alanwunsche

Googlenomics [@Wired]

Wired Magazine's "Secret of Googlenomics" article explains the math behind Google's AdWords, Google's online unique advertising auction.

The entire article by Stephen Levy is a great read but what I found particularly interesting is the following passage because it describes how every bit of data has potential value:

Keywords and click rates are their bread and butter. "We are trying to understand the mechanisms behind the metrics," says Qing Wu, one of Varian's minions. His specialty is forecasting, so now he predicts patterns of queries based on the season, the climate, international holidays, even the time of day. "We have temperature data, weather data, and queries data, so we can do correlation and statistical modeling," Wu says. The results all feed into Google's backend system, helping advertisers devise more-efficient campaigns.

To track and test their predictions, Wu and his colleagues use dozens of onscreen dashboards that continuously stream information, a sort of Bloomberg terminal for the Googlesphere. Wu checks obsessively to see whether reality is matching the forecasts: "With a dashboard, you can monitor the queries, the amount of money you make, how many advertisers you have, how many keywords they're bidding on, what the rate of return is for each advertiser."

Wu calls Google "the barometer of the world." Indeed, studying the clicks is like looking through a window with a panoramic view of everything. You can see the change of seasons—clicks gravitating toward skiing and heavy clothes in winter, bikinis and sunscreen in summer—and you can track who's up and down in pop culture. Most of us remember news events from television or newspapers; Googlers recall them as spikes in their graphs. "One of the big things a few years ago was the SARS epidemic," Tang says. Wu didn't even have to read the papers to know about the financial meltdown—he saw the jump in people Googling for gold. And since prediction and analysis are so crucial to AdWords, every bit of data, no matter how seemingly trivial, has potential value.