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Square

Making payments easy, anywhere anytime

Sector: Futurebank
Themes:

Square’s insight came from the millions of small businesses who lose sales because they cannot accept credit cards. Empowering first the retailer, and the consumer, Square had to fight to change the rules of the market.

square-credit-card-reader1 (1)In 2009, Jack Dorsey distributed “140 Reasons Why Square Will Fail” to potential investors , partly to demonstrate the challenges he faced, but also to articulate the difference he sought to make with his Square card reader. The thumbnail-sized device seeks to allow anyone, anywhere to take credit card payments.

Dorsey knows about innovating amidst adversity, having previously developed Twitter when everyone said micro-blogging would never take off. He makes a point of not having a finance background, believing it would limit his imagination, and doesn’t recruit anyone who does. However complex the challenge, he believes that any new innovation should be so easy and intuitive to use, that people wonder why it never existed before.

Square launched its card reader in 2010, basically a white dongle that plugs into the earphone socket of an iPhone or iPod, Android or Blackberry phone turning it into a credit card reader and processor. Within a year, a million small retailers were using Square to process $5 billion in transactions, numbers that almost tripled in year two. The business valuation grew rapidly too, worth around $3 billion, compared to the $341m invested by VCs including $25m from Starbucks. The dongle is free to buy from Square,com, and once activated connects to Square Register, a point-of-sale phone app that behaves like a check-out, allowing customers to pay with cash or swipe a credit or debit card and sign on the screen. In 2011, SquareWallet was launched to consumers, creating a self check-out, which connects to the retailer’s account.

The business model is compelling too. Square charges retailers around 2.5% per transaction, or for small retailers a flat fee of $275 per month compared to the much high rates charged for low volume businesses by most card companies. Square is such a no-brainer, that it hasn’t needed a sales team, spreading by word of mouth between market stall holders , corner shops , tradesmen and start-ups.

The insight that gave birth to Square came from Dorsey’s friend Jim McKelvey, an artisan glassblower, missed out on a $2,000 sale because he was unable to accept payment by credit card. Technology was not the obstacle, but the major credit card companies were. Their rules prohibited intermediaries, which effectively Square was, although Paypal did likewise. Over the next six months Dorsey and team had to change the mindset of banks and card companies, in order to get his new process accepted. Those companies are no imitating the start-up, including Visa’s Samsung-partner PayWave app, and Bank of America’s Mobile Pay on Demand.

Pivot points for Square in “changing the game” of payment systems include

  • Explore: Seizing on the deep frustration of a large potential customer base
  • Disrupt: Challenging the current market model, to allow Square to be different
  • Connect: Partnering with investors to showcase and promote the experience
  • Design: Keeping ahead of imitators, moving Square towards consumer control

With Starbucks as a shop window, entering new markets across Asia, and a huge potential small business market, Square’s growth is set to accelerate.

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