New Ventures in Financial Services

Focus on Payments and Mobile

SquareUp – Updated from Previous Post

with 2 comments

Updated Dec 10, 2009 (Previous Post Here)
http://squareup.com/

Twitter founder Jack Dorsey. Card swipe on iPhone.

More info today (Dec 2, 2009) from Venture Beat. The updates are based upon business model of card-card vs. Card to existing POS (or receiver registering as a “merchant”). Will I see my local ticket scalpers and hot dog vendors taking credit cards on their iPhone? Data we know:

  • Plug in Card reader into Audio input Jack
  • Pilot with a couple small merchants
  • Not open for business yet (as of 12/2/09)
  • Mind behind it is Dorsey
  • Khosla is Seed Investor.
  • Very US centric.. no EMV (Chip and Pin)
  • “Picture” for risk management
  • Unclear whether model is Card-Card or SquareUp is acting as a merchant aggregator (see IPSG in Here)

Updated Analysis:

  • US Centric Consumer play (no EMV)
  • Credit Card transactions with 350bps… not the greatest for a “cash replacement” value proposition (PIN Debit is 150)
  • Issuing Banks have control over card-card transactions. Pilot likely used SquareUp as merchant.
  • If SquareUp is acting as a Merchant Aggregator, then they will own all fraud losses (CNP Transaction). Assuming that the  “merchant”  swipes the card, it is assumed that the “merchant” did not sign the merchant agreement (ie. visa/Mastercard), SquareUp would be the Merchant in this case and the card was not present at SquareUp’s POS for inspection.
  • Consumer population is limited (how many of your phones have an “audio input jacks”)?
  • Model competes heavily with both bank initiatives (in mobile) and those within Visa/MasterCard. (MasterCard MoneySend, Visa Money Transfer)
  • Merchant incentives are weak vs. Cash or PIN Debit.
  • Issuers will not jump on board with this one. 1) competes with other projects 2) fraud controls are not proven, 3) Consumer demand, 4) Issuers want to own the consumer experience,
  • MNOs will likely also resist, as they have no incentives to support.
  • Device is not certified by Visa or MC, where Verifone’s payware is http://www.paywaremobile.com/

My guess is that squirrel has the technology working.. but haven’t figured out the “banking side” and how to expand beyond the cards that they can directly control. This team should have partnered with either a bank or an MNO as it will require some significant marketing dollars to move customer adoption.. even for a pioneer in social networking like Jack.  Differentiate this approach, with the “partnership” approach taken by teams like BlingNation (see post here)

In addition to BlingNation’s partnership model, integration of NFC into existing handsets will presents a much larger “global” opportunity. See

Innovation in payments is tough… if I were going to add something the Steve Job’s product plan for the iPhone what would it be?
• Global
• Ubiquitous
• Unique to every person
• Globally Accepted for use in Payment and Authentication, by merchants, banks, networks, regulators
• Low error rate
• Impossible to clone
• Difficult to crack
The answer is… ( ). OK so nothing fits my criteria, but any appendage on my iPhone must certainly seek to optimize the goals above. Only item I’ve seen that comes close it IRIS scanning.. now being miniaturized to fit on a chip the size of your thumbnail (below). Just for fun.. I bought “paybyiris.com” domain as I finished this article (today).

http://www.nydailynews.com/archives/news/2002/01/07/2002-01-07_credit_card_cloners___1b_sca.html
http://4g-wirelessevolution.tmcnet.com/news/2009/08/19/4331395.htm

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Written by tomnoyes

December 2, 2009 at 5:20 pm

2 Responses

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  1. We had a debate internally about square as thumbsUp/thumbsDown today in the office. The final tally: strong maybe.

    Our VP sales thinks this will be adopted not by small fixed-location retailers, but by mobile contractors and Amway/MaryKay distributors, which is a big market. If square could make their block pink and skin the payment app, this service could have significant appeal in the direct-sales sector.

    My first take on noEMV was the same as yours – ‘u.s.a only and short-lived even there’, but after thinking about it for a while, I’m not so sure. There is an awful lot of CNP business in the world and noEMV isn’t going to kill that, so even if the square only functions as a keystroke saver, and despite high fees, no issuer buy-in, if it helps move cosmetics in house parties across America, then it could be a winner.

    Lisa Shields

    December 5, 2009 at 2:21 am


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