Square Co-Founder on Payments Innovation

Before Square was the subject of payments industry gossip, before it launched a tidal wave of mPos products in the U.S. and around the world with the simple and elegant solution of turning mobile devices into ubiquitous points of sale that just about any business can use, before Square dove into and jumped out of the mobile wallet business—before any of that, Square was created to solve the problems of one specific customer.

Jim Mckelvey was that customer, and when he and Jack Dorsey created Square, their goal was not to enter payments—they were trying to sell something else entirely and realized they needed a payments solution.

The solution turned out to be a better idea than the original product, so they scrapped the product and Square was born and the rest in payments industry history in the making from there.

Mckelvey has continued to think outside the box and look for the next great solution, now in his capacity as the founder and managing director of Six Thirty, a St. Louis-based accelerator that helps to give the next batch of great financial services start-ups the push they need to break into the often complex, weird and challenging payments ecosystem.

Market Platform Dynamics CEO Karen Webster caught up with Mckelvey for PYMNTS Innovator Insight series to talk about what it takes to make it in financial services, how Square did it and how he is now helping other companies bridge that divide.

Mckelvey said the first lesson he learned was that from a technical standpoint, building the product isn’t the hard part.  The hard part is dealing with the fact that “if you build it, they will come,” does not exactly apply to financial services products, because “they” really need to know who you are and what you are going to do with their money.  In Square’s case—creating the product took less than a month, getting the product to market took over a year.

(Jump to 3:15) “What I would love to have had then is the relationships I have now. When we started Square the hardware, the servers, the technology was working in three weeks. It took us 18 months to launch the product in a legal and compliant and secure way.  It was not a technical challenge, it was a business challenge to get all the all the regulations, PCI, KYC, money transmitter relationships, banking relationships, the capital reserves, the fraud—all of the things we needed to do took a year and a half. Ultimately those came down to relationships with larger entities.”

Mckelvey clearly noted that the process was not onerous, and that many of the parties they worked with, Chase in particular, were fantastic, but it took a long time to develop that relationship nonetheless.

This issue reoccurred continuously, as moving money is a highly regulated process that requires relationship building and credibility establishing at every turn.  To do what they company had to do, they needed to build relationships with those bigger players, and those connection took time to forge.

This is the problem that 6:30 now hopes to help solve. Apart from handing start-ups $100,000 in funding they also help smaller players line-up with the large players whose support they need.

That extra layer of support is particularly important for FinServ start-ups, he explained, because they face a challenge that no other business type faces.

Any successful business has to provide three things necessarily, according to Mckelvey.  A company needs a problem it is solving, a great team to build the product and enough money to keep it the doors open.

Jump to (5:05) If you have those three things you will succeed, unless you are in a financial services business, in which case you need a fourth thing, which is you need the relationships with the various companies… At every point of the ecosystem the startup faces the need to partner with organizations that have resources that allow them to play. It was true Square’s case, it is true in the case of all the 6:30 companies and it is generally true of the financial services market, you are not going to see much interesting stuff happen without these partnerships between the start-ups and some of the major players.”

Mckelvey noted that players who understand their product usually know who they need to work with, as it is often pretty obvious, they just need a push in the right direction.

He also noted, in response to Webster’s question about how he guides companies building multi-party platforms where perhaps all the relationships are not obvious—something interesting.

He advises companies to stay far, far away from multi-party platforms.

(Jump to 9:25) If you’re trying to do a two party platform play….I will vote against you.  Unless somebody comes to me with a beautiful, sort of game theory consistent explanation as to how they are going to magically create a two sided market for payments or any financial service I just look at them and go ‘yeah… if you could fiat it into existent great, but you can’t so…  I wont’ speak for 6:30, but I’m not looking for anything like that because I think those plays are very, very rare.  Typically they involved sort of co-opting an existing system from another ecosystem.  So the mobile wallet, co-opts the phone number-  if phone numbers weren’t unique and precious you wouldn’t have mobile wallet plays.  But even those are having trouble getting off the ground, even when it’s done by Google.”

And he says, the industry is always moving forward, and so what we are building for today, may not be on the table five years from now.

For example, he thinks mobile wallets will wink out of existence shortly after physical wallets do.  The future of payments, he says, is in building identifiers, not better carriers.

(Jump to 12:38) I think it’s inevitable, as far as the timeline, I don’t think it’s going to happen in the next five years but I think anything past five years in technology is a ridiculously arrogant and misguided pronouncement.  It’s imminent.  As we continue to make improvements and refinement in the ways machines interact with humans what I think what you are going to see is not just the wallet disappear but the mobile wallet disappear too. I think the mobile wallet is an abstraction of a physical thing that is on its way out…At some core level you just have an identity system. Identity is the foundation of all payments and I think it will as an abstraction dissolve into just identity.  A wallet is not an identity it’s just a keeping thing and I don’t know that the wallet is appropriate as an analogy.” 

For his money, and 6:30’s Mckelvey says he is looking for companies that find ways to bring new information and freedom to the market.

To hear PYMNTS full conversation with Mckelvey, press here.

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