First up, it’s not just Square Cash. The whole P2P space is a head fake. But let’s focus on Square.
Square Cash up front seems strange. P2P does not seem like an interesting problem and is a harder problem to solve for consumers, if you do not have a marketplace like eBay. WePay tried it for a while, before giving up on P2P. Google seems to employ a “negative-margin” strategy for P2P – but they have allowed Credit Cards as a funding source to move money (and kept it free for a while) – all the while focused on growing its Wallet customer base. They are not Apple strong, with cards on file – but (rumor has it that) they have more cards on file than Paypal.
I like how Google and Square dumbs down payments to the point – where sending money to someone is as simple as attaching a document to an email, or sending an email. Ben Milne had always spoke of how ridiculous it is that moving money in a digital age is nothing like moving bits – but should be. I also agree with Erin McCune when she writes that “US financial services community will face a mandate for real-time, good funds push payments within the next five years”.
But P2P is an infrequent problem, it reflects the long tail in payments – and therefore hardly sustainable. WePay realized that. When P2P is brought in context to social interactions – where need to pay someone else exists – whether its rent, splitting a bill, paying the sitter, pocket money for kids, office pool etc., it starts making sense. But still – quite infrequent in use and need.
So why Square Cash? Well, Square is hardly the company it once was. It once was a champion of the small merchant – who craved for credit acceptance and the benefits that it brought along – higher basket sizes, more consumer friendly, less exposure to fraud etc. For those small merchants – credit acceptance was the primary value proposition – and it really didnt matter if the customer chose to pay using credit or debit. Further, Square was solving for the merchant first, and really did not focus on growing its wallet base – so though it enabled acceptance to over a million merchants, correspondingly it did not grow as quickly on the consumer end. The reason being – the strategy which really fed its growth on its merchant acquiring front – is that it required no change in consumer behavior. We kept on swiping – now at dongle enabled merchants who previously was cursed to a life of cash. Square solved for the merchants first and foremost, and is now slowly waking up to the absence of a customer base on the ‘Square wallet’ end – because there really have been no reasons for consumers to sign up for one. The “Pay by name” was cool – but suffered from a lack of merchant adoption. As long as I still have a credit card – which was really all that’s required of me – I didn’t feel the need to have a Square wallet to transact at a Square merchant.
Further – For average ticket sizes for Square (rumored to be under $15) Square did lose money with volume – despite some fancy behind the scenes orchestrations with purchase aggregation – and this sped up Square’s push up-market to bigger merchants, affluent customers and higher average ticket sizes. Only – at that level – merchant needs are different. Credit Card acceptance is no longer an issue. One can say – merchants of that size need help with driving incremental customer traffic and for reducing payment acceptance costs. However, for large merchants who are cost conscious (and depressed retail margins always force you in to questionable consortia – 😉 at my friends at MCX) reducing payments cost plays a larger role when adopting new ways of commerce. And on that front, with a customer base that (may have had) leaned more towards credit (vs debit) for cards on file with Square, there is not a whole lot of value it can bring. Walmart and Target (not saying that they have anything to do with Square) hardly needs Square’s help in driving incremental store traffic. They need all the help (and Target does this quite well with RED card) in shifting purchase volume away from costly credit to cheaper debit (and private label) options. Without establishing that their customer base has a propensity to use debit, or showing that there is a good mix of debit/credit on file – Square does miss out on the bigger-merchant pitch.
And with Judge Leon flinging further sand in the Durbin gears, leading to much ambiguity concerning where those debit rates will end up ($0.07?) – shoring up a debit card base only helps Square in setting its sails in the direction the wind blows. Defaulting to debit for every transaction (in the same way Paypal “suggested” ACH in the past, and will “suggest” BillMeLater in the future) enables Square to keep costs low for itself, and indirectly for its merchants. Jack has been open to shifting away from 2.75% to having tiered pricing (the 2.75% standard pricing is a facade – Square has long been open to caving on pricing, if the volume expectations are set) and this allows Square to fine tune its pricing economics – even while taking a little more risk.
So to all who looks at Square Cash as Square losing focus – Square Cash is more about Square than it is about its customers. It is Square trying to be relevant up-market. And cost conscious. And profitable.