A firm that made it easier for independent retailers to accept credit cards now dallies with online money transfers.
By G.F. | SEATTLE
WHEN Square was founded in 2009 it set out to upend the market for taking credit-card payments among small merchants. It is now poised to disrupt the market for personal remittances. Square's literally square small card-reader attaches to a smartphone or tablet, and allows independent vendors to set up an account and charge merrily away. It has been a godsend for tiny retailers without access to credit-card machines, such as at farmers markets, jumble and garage sales, artists, small retail shops and so on. It is now common to walk into a new independent boutique and see an iPad being used to handle the transactions. PayPal and others leapt on the bandwagon after Square's rapid growth.
The firm, which was developed by Jack Dorsey, one of the creators of Twitter, has now come up with a personal remittance system called Square Cash, which uses e-mail to allow person-to-person transfers. One party e-mails another directly and includes in the cc field the address "[email protected]". The subject line includes the amount in dollars to send.
PayPal pioneered similar transfers in the 1990s, but those require providing details linked to a bank account or credit card. Other online services make intra- and international wire transfers from bank accounts easier and cheaper than storefront transfers or through a bank. Xoom, for example, charges modest rates for wire transfers; Venmo has no fees except if a credit-card cash advance is used; and Dwolla charges nothing for transactions below $10. But like PayPal, you need to set up an account with the business over the internet first.
Square Cash does not require initial registration through a website, so cash is quickly sent with hardly any delay. Square is a payment service provider, not a bank. Rather than using wire transfers, it links debit cards and processes the exchange between accounts as a debit transaction. The first time a sender cc's Square's address, he is prompted by a reply e-mail to link an account. The same is true for the recipient (or else the transaction is cancelled).
Brian Grassadonia, Square Cash's product manager, says the firm deploys the same fraud detection and prevention processes it uses for its billions of dollars of credit transactions. Square Cash allows up to $2,500 per sender to be transferred per week, but the moment a user pays out more than $250 in a week he must provide a mobile number to which an SMS message can be sent. (There is no limit to incoming money.) Subsequent transactions are noted by an SMS. Square has optional Apple and Android apps that put a slightly more formal face on sending and receiving payments, but e-mail remains the driver of the transaction.
The service is designed not for retailers but for individuals, such as your correspondent repaying $3 for pizza to another reporter recently. There is no enforcement, as Square doesn't inspect the transactions. It watches for patterns, explains Mr Grassadonia. In any case, transactions require accounts at either end registered to an American bank, which limits anonymity and abuse. The service also includes a dispute-resolution process in case something goes awry.
For now, Square says it has no plans to charge a fee. It may be trying to drive the cost of simple transfers down to zero to shake out the market, but it likely has its eyes set on more lucrative areas.
E-mail is an extremely low-bandwidth service and widely available in poor countries with high mobile-phone penetration. Kenya's M-Pesa and other mobile-money systems led the way in enabling cash transfers among the otherwise unbanked. Even in America, 10m households had no bank access in 2011, according to the Federal Deposit Insurance Corporation, a regulator, and 24m households are underbanked, lacking easy access to retail banking facilities. Yet most have at least a pay-as-you-go mobile. Remittances are also a fertile market. The World Bank estimates $414 billion flows to the developing world in personal transfers, and the cost averages 9% to send.
Square Cash, like its competitors, has a low profile at present. But there is a whole world of personal transfers from which to capture a tiny slice.
