VISA Squared… what are the possibilities of VISA & Square.
As per my pervious blog posts, the Mobile Financial Services industry is hyped with frequent merges and acquisitions currently. The most recent being VISA's move to take an interest in Square, Twitter inventor Jack Dorsey's disruptive mobile payments service.
First, let's take a look at Square. Square combines two services, an electronic payment service, and a card-reading device that simply plugs into the headphone jack of your iPhone, iPad or Android phone. Allowing users in the US to accept credit cards payments through their mobile phones, either by swiping the card on the Square device or by manually entering the details on the phone (Wikipedia, 2011). The business model offered is simple:
- Free card reader. Free app for iPhone, iPad & Android.
- Get Paid through VISA, MasterCard, American Express & Discover Card, directly into your bank account.
- All for only 2.75% per transaction.
- The services requires no contract and no ongoing commitments.
Think that will scare the banks, who currently make millions in Merchant Acquiring solutions? Or will it scare the Ingenico's & Verifone's of the world to realise they are about to be disinter-mediated on a device front? Personally I think it's brilliant. It's a key step in sunsetting the legacy infrastructure that burdens the modern consumers payments networks with proprietary expensive devices. Instead a payments accepter just needs an iPhone, iPad or Android device. Last quarter Square did $66 million in payment volume and plans to triple that this quarter, and that's just in the US.
To date Square has needed to cross one of the toughest bridges in the financial services industry, it needed buy-in from the industry, which is highly regulated and has barriers to entry. VISA taking an stake in Square goes a long way to legitimising Square's technology. If VISA and Square can work to develop a VISA certified device, I'd suggest wide scale adoption will happen, fast! Particularly in the Small to Medium Business sector where the cost of current Point of Sale Merchant services are not as attractive. What else legitimises Square's disruptive approach is the appointment of an exec from JP Morgan, which is Square's US payments partner.
One the broader vision of Mobile Financial Services, this move by VISA should be seen as a strong one. One of the key challenges of using mobile devices for point-of-sale payments is the change in consumer behaviour shifting from Plastic Cards & POS Devices to a mobile to mobile transaction. If VISA can drive mass adoption of the Square reader, the market would be quickly taken through a perception change as they witness an increasing amount of merchants using a mobile phone, therefore building confidence over time in the technology. Thus creating a more sustainable stepping stone for the longer consumer adoption of mobile as a payments instrument.
It's only a matter of time then until the card is replaced by a service, NFC, Application or other, in the consumers handset. Creating mobile to mobile point of sale. From there the possibilities are endless.
Great move by VISA