Square Hits Home Run with Card Case

Square has announced a new payment service called Card Case that could significantly impact payment processing in the US. With all the payment news lately centering around NFC contact-less payments this out of the box thinking makes a lot of sense.

Let's ignore merchant adoption for a minute and explain how it works. A buyer downloads the free Square application on their smart phone and visits a Card Case participating merchant. The buyer selects the merchant on their phone and hits "Start a Tab" before making a purchase. Since this is the first purchase using Card Case the buyer swipes their credit or debit card to pay as normal. The merchant swipes the card into their Square register (an iPad) instead of the old credit/debit card terminal. After the purchase, the buyer receives a text message with the payment confirmation and associates the transaction with the card to use for future payments.

The next trip to a merchant you can just check in to enable the payment with a single button and tell the cashier your name. The merchant will see you and your picture on their register and charge the account. You get instant notification of the payment all just by telling the merchant your name.

How does it work for the merchant? The merchant sets up an account with Square and downloads the app onto their iPad which becomes the cash register. The swipe occurs in the small Square device that is plugged into the headphone jack of the device. This is consistent with Square's first product in the marketplace to allow anyone to accept payments without a merchant account. You can see more by going to squareup.com,

This is truly out of the box thinking and is simple. When you think about it, why do we need NFC (contactless) payments anyway? Wouldn't it be better to go to the counter and be presented with the total on your phone and approve the payment? Whether you like the way it works or not the idea of somehow connecting the merchant and the buyer directly to make a payment is better. And with merchants rejecting the ISIS NFC approach recently the time may be right.

The use of geo-location is another big plus. For the buyer they can locate merchants near them to make a purchase and as a security feature to enable the payment capability when they are ready to purchase. They also get to see the menu or products ahead of time to help decide what they want easier. The merchant will be able to make special offers or discounts if they choose to entice buyers nearby to come in for a deal.

Another major selling point is that it is available now in select areas and expanding over the next few weeks.  Buyers can download the app today and merchants can sign up right now. Square is already used by small businesses or part time vendors who need a mobile solution for occasional payments without requiring a merchant account.

And this brings us to merchant adoption which is critical to the success of Card Case. First, Square has a good track record so far with their original product which has grown to $1B annually and 1M transactions a month. Small by VISA standards but impressive. There are many advantages for the merchant including knowing their customer, using geo-location to reach out to potential buyers nearby and a simple billing method.

Barriers to merchant adoption could be the cost. It requires at least 1 iPad and some form of connectivity for the device whether that is wi-fi or 3G coverage. For larger businesses it may require more than 1 iPad. Ideally it would require a rotating mounting harness to hold the device and have both the buyer and merchant to access it, at least for the first transaction. The fees are the same as credit transactions so that will not be a factor.

For me there are two main points that stand out with Card Case. First, this is version 1.0, so the features they will be adding could change the buyer and merchant experience. This could become not only a new way to pay but a new way to shop. This has a potential to bring change much the way Groupon has brought change in the coupon/offers market.

Second, the new payment paradigm may catch on or at least bring about more innovation with similar but improved models that can truly bring about the digital wallet.

Of course with all new technology there are concerns with security leading the way. It seems as though the security would be improved since you enable the payment right before purchasing. However, this also requires that Square would hold your credit card data which must be protected adequately. And of course, what if someone gets a hold of your phone. All of these issues can be addressed as needed.

Looks like Square founder and Twitter creator Jack Dorsey has another big hit. We will find out pretty quickly as the trial rolls out wider in the next few weeks. Judging by the star ratings and comments on the Apple App store for the free Square download it looks very positive. Almost all ratings were 4 or 5 stars.

BOA to Rollout Text Approval for Overdraft Transactions

Bank of America has announced a pilot program that will allow a customer to approve a declined transaction via text message when there is not enough money in the account. If they approve the transaction the customer will be charged a $35 overdraft fee. In order to participate, the customer must enroll in the program ahead of time. BOA will also not charge the fee if the money is replaced by the end of the day.

Last year regulatory changes went into affect for all banks that prevented overdraft fees without a customer's active consent. In response to this, BOA simply started declining transactions that would overdraft an account. This of course significantly cut into the huge fees that were being racked up by BOA and other banks.

While I don't recommend anyone intentionally opt in to overdraft fees, the approach seems quite fair. The customer is opting into the program and then agreeing to the charge on an individual transaction basis each time. I must give BOA credit for the use of technology to enable options for the customer while generating a new revenue stream for them.

I am sure there will be some who criticize this program as taking advantage of lower income customers who live within thin margins. However, I am a believer in accepting responsibility for your actions. After opting into the program and then approving each transaction this clearly meets the definition of active consent.

If the pilot succeeds I believe we will see this same model roll out at other banks fairly quick. After all, why miss out on another revenue stream. Congratulations to BOA for thinking out of the box.

ISIS Payment Network Step Back Points to VISA and MAC Win

The mobile payments NFC Joint Venture Initiative by AT&T, Verizon, T-Mobile and Discover has taken a major step back. Their initial plans to build a new NFC payment network will now be scaled back to merely a mobile wallet solution which will allow payments through VISA and MasterCard.

Looks like this setback is courtesy of the US retailers who are not willing to install any new systems at their registers unless their customers can use VISA and MAC to make their purchases. Discover is simply not big enough to draw any interest. Thus the downgrade to a mobile wallet by the partners puts them in competition with the numerous other competitors offering mobile wallets in the space.

The irony of it all is the love-hate relationship with US retailers and VISA/MAC. The retailers hate paying the fees for both credit and debit cards (Durbin Amendment still looming) but know that they must comply to keep selling. So it looks like mobile payments will not likely break the stronghold  of the big boys and that the message was delivered by the US retailers themselves.