By Tom Waters and Ben Abel
Bank Associates Merchant Services
In "A Square peg in a round industry - part 1," The Green Sheet, April 28, 2014, we looked at the foundation Square Inc. has developed within our industry. Now we will explore what could be expected as Square continues to grow its presence.
Square has always shown interest in expanding its service offerings, pushing its vision into additional areas of the payments industry. The company has already released a suite of services ranging from Square Register or Square Wallet, through Square Market to Square Cash. It has also established partnerships with Starbucks Corp. and Whole Foods Market Inc., both major players in their respective industries.
In late 2012, Square crossed into international territory as it began processing payments in Canada. In May of 2013, the company announced its mobile payment service is to become available in Japan (at a slightly higher percentage rate). Square also recently revealed its next steps include adding a merchant cash advance program, live customer support, custom pricing and an outbound sales staff.
It is important to note, however, that new features and divisions simply equal new expenses unless they are successfully adopted. Square is built from venture capital and at the moment faces imaginary gains and real losses.
With Square's potential new features on the horizon, we asked members of GS Online's MLS Forum, "Will this make Square a more formidable competitor?"
Forum member Steve Norell did not appear to be concerned saying, "[In my opinion what] Square is morphing into or developing into with their recent announcements and changes, is just another ISO albeit a very large one."
Member mbruno theorized ways that Square could continue to differentiate itself from standard merchant services. "If they do go the ISO route - I believe they will do so by leveraging data as the main selling point. They, like PayPal, can be customer and merchant facing - which presents a lot of potential for marketing. I know a lot of places that would pay a good amount for marketing that was targeted to the phones in their customer's pocket."
User gmartin, however, offered an exceedingly cautious perspective toward this potential leviathan. "With them venturing into custom pricing, merchant cash advances and actual phone support, they are becoming a formidable competitor," he wrote. "I wouldn't be shrugging them off anymore, and I would think twice about sending anyone to them."
Keeping business from moving in Square's direction has become an easier task as well, as there are also several other aggregators with similar models to now pick from. In response to Square's success, a fair amount of "Square-type" solutions are being offered directly by ISOs.
So what kind of significance does Square stand to play in the payments horizon? The term "disruptive innovation" was coined by Clayton M. Christensen in the late 1990s. Time will tell if this description accurately describes the legacy of Square.�Let's look at the pattern that defines a disruptive innovation.
It typically starts with novel combinations of already existing technologies, take for example a smartphone and a mag stripe reader. A new product, birthed out of the combination, is then applied to an emerging or underserved market. This would be a segment or demographic that may have offered too slim of a margin or too little market share, or both, to make it worth the immediate attention of the larger firms.
Christensen's theory states that it is not until this disruption reaches the value networks of the larger entities that they begin really paying attention. Unfortunately, at that point it is typically too late to completely fend off the attack, as the disruptor has become established in said market. This eventually impacts the overall price points or product offerings of the pre-existing firms as they follow suit in an attempt to retain their remaining market share.
Forum member jgarza, who initially directed us to articles about Square's long-term plans, theorized about how Square could impact the future of payments. "I think this will mold the landscape of payment pricing considerably," jgarza said. "This move will take time to evolve and get correct, although when they figure out the model, pricing will change considerably for the standard ISO." He demonstrated this point with the example of Braintree which, like Square and Stripe, now offers a flat-rate pricing program.
DEE MALIK suggested the best way to protect ourselves from Square, and the potential future impact of other disruptors, is by strengthening our industry's barriers to entry and having innovation occur from within. "Our channel should not allow anyone � to play here easily. That is a mistake. � [T]his is what happens when a VC backed venture, with more money than what to do with it, sees an opportunity." Whether those defensive acts can still be played at this point is to be seen.
Square has grown by leveraging alternative payment options in a market that was not being explored by traditional payment processors. That growth has led to successful rounds of venture capital fundraising, which potentially allow Square to retarget its audience to compete more directly with the ISO/agent channel.
We have seen examples of smart, innovative companies forced to sunset payment projects such as Google Checkout (discontinued in November 2013) and Groupon Payments (downsized in January 2014). It makes sense to keep a watchful eye on Square because its trial and error process helps us see what works. Square can be our litmus test of market demand. Its brand recognition is a hindrance and a blessing, as it allows us to benchmark our value proposition and adapt to market demands.
It will also be interesting to see how Square adapts to the upcoming Europay/MasterCard/Visa mandate. The new criteria for processing physical cards will force Square to launch newer, more expensive hardware that may be difficult or cumbersome to integrate with mobile devices.
Hardware failure has been problematic for many mobile payment hardware solutions. While Square has demonstrated resilience after its first-to-market product launch, it is now stepping up to the complex and competitive ISO market channel.
Bring it on.
Tom Waters has been dedicated to the merchant service sales profession since 2001. Currently, he is responsible for cultivating relationships with entrepreneurs in information technology, accounting, sales and marketing in his role as Sales Director of Bank Associates Merchant Services (www.bams.com). Using fresh and matter-of-fact training methods, Tom has contributed to the success of thousands of agents, affiliates and clients. He can be reached via email through t.waters@bams.com or via phone at 347-651-1065.
Ben Abel is Regional Director at Bank Associates Merchant Services. Since joining the team in 2006, he has risen through company ranks with a paradigm that his success was measured by the success of those around him. Ben is a dedicated, pioneering trainer whose methods of merchant services consultation have helped many agents expand their portfolios in terms of processing volume, deal count and profitability. He can be contacted at 347-866-9571 or ben@bams.com.
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