PYMNTS.com asked IP Commerce‘s Platform Evangelist, Tyler Hannan, to weigh in on the battle brewing between Verifone and up-start Square, and to look at its impact on the payments industry.
Recently, on TechCrunch, a piece ran entitled Verifone Brings Out The Big Guns In Its War With Square: Apple Stores. In the post, additional detail is given by Verifone CEO Doug Bergeron regarding the distribution strategy for Verifone’s PAYware Mobile solution for the iPhone. In short, both Apple physical retail locations and the online presence will begin selling the mobile reader this month.
This announcement created quite a discussion of whether Square or Verifone will “win” the race to dominate card-present mobile acceptance. The news is important for Verifone. By having a distribution mechanism, such as the Apple Store, for their device they are able to overcome one of the many challenges that is involved in establishing substantive market traction. A customer must have access to hardware in order to use it.
Square has not, as of yet, announced the entirety of their plans for distribution of their swipe device. There has been talk of distribution via their Website, and it seems likely that they will have the “square” dongle at events during their initial stages (i.e. SXSW).
However, it is important to note that hardware distribution is not the totality of enabling adoption by a customer. There must be a solution to “connect” the device to the processor/acquirer network. A card acceptance device, by itself, is of no utility unless it can actually process a transaction. Bergeron’s comments included additional detail on the connectivity provided by the PAYware Mobile solution. A key quote from the earnings call is as follows:
In addition, we have established PAYware mobile gateway processing relationships with over 70 ISOs to-date, allowing them to assist existing or new (inaudible) customers in processing payment via the iPhone. Finally, and importantly, customers will also be able to purchase our PAYware mobile solution through our paywaremobile.com direct sales site, which provide – which forwards transactions to one of five blue-chip processors. And starting in March, at Apple Retail Stores in the United States and the Apple Business Store online.
What does this mean for Square?
Before answering this question, there is a base premise that must be understood…
It is not about the hardware.
Or, perhaps, it is not “just” about the hardware. In either solution, the hardware serves a specific utility…enabling a swiped transaction.
On Febraury 12, 2010, David S. Evans interviewed Jack Dorsey (CEO of Square) in a piece entitled Twitter Vet Jack Dorsey on How Square Redesigns the Payments Process. In this interview, Dorsey made an extraordinarily important statement when asked the question “What’s next with Square?” I have pasted the quote in its entirety as it is key to understanding this issue:
Jack Dorsey: Well, the biggest thing about Square is not necessarily the hardware, although it does allow us to capture credit card information very quickly, but the biggest friction point around accepting credit cards is actually getting a merchant account. So being able to become someone who actually can accept a payment off a credit card, off a prepaid card, off a debit card, is actually quite difficult, and it takes a long time – it’s a very complicated process. So we wanted to get people in and accepting this new form of payments, and this very widely used form of payments in under 10 seconds.
Reading the comments on the TechCrunch post bring this dichotomy to light in a uniquely telling fashion. On one hand there are some calling “Checkmate” on behalf of Verifone, and on the other people yearning for the ability to accept card payments without the need of establishing a merchant account. This is highly illustrative of where I see the market progressing.
With Verifone’s ISO relationships and ability to send PAYware transactions to a “blue chip” processor, there is a market opportunity for new, or existing, merchant customers. With Square’s ability (albeit stated) to enable merchant accpetance quickly and simply, there is a market opportunity for new merchant customers.
If I were to place the market opportunity of each company into a Venn diagramme (without having performed the required primary research), there would be a bit of overlap…but I suspect/predict, there is market opportunity for each company. A multi-lane, national retailer will desire the integration and capabilities of the Verifone solution. In particular support for the existing merchant processing relationship. In contrast, a different class of customer requires the capabilities and simplicities afforded by Square.
So who wins?
I tend not to be a fan of predictions. But in this case, I feel very strongly…Who wins?
The customer.
The ability to choose which solution is most applicable to a customer is wildly important. For example, Square is the appropriate solution for a Denver non-profit with which I act in advisory role. They are faced with a challenged in accepting card-based donations at quarterly fundraising events. The pricing associated with a traditional merchant account simply does not meet their needs. Similarly, the small deli/coffee shop near my office speaks with fond desire of supplementing their acceptance capabilities with a Square solution so they can, effectively, become multi-lane and have some payments taken in-line rather than at counter.
In contrast, I don’t see many large retailers desiring the Square solution…and this is expected, I imagine, by the Square team.
Is there an overlap in target market? Yes. Does this mean that each company can’t achieve success in the mobile acceptance market? Not by a long shot. Ultimately, it is not about the hardware. It’s about the end-to-end user experience.
Tyler Hannan is an experienced technologist with a passion for human interaction. As the IP Commerce Platform Evangelist, he delivers unique value to the organization by collaborating and coordinating with companies within the payment processing and technology market to drive innovation and deliver understanding of the IP Commerce Platform and Network. His blog, Reflections on Emergent Commerce and Technology, serves as a compass for industry leaders looking to break down technology silos and deliver on-demand commerce services.
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