Source: Starbucks Partners With Square
Apple has never been shy about bringing change to complacent industries. Its products have reinvented music distribution, mobile phones and, with its new mapping app, GPS navigation devices in cars. It may be time to add a new sector to sound the alarm: Apple appears to be maneuvering itself into position to challenge Visa and Mastercard like no company has before.
The prospect has intrigued analysts for a while. In May, JP Morgan analyst Mark Moskowitz floated the idea of “iPay,” a hypothetical mobile-payment platform that Apple was in position to develop. Although Miskowitz saw no evidence of an iPay platform in the works, he was optimistic that Apple would move in that direction, given that the Apple Store app – which lets shoppers check themselves out of an Apple Store with their iPhones – was a small step in that direction.
This week, Apple took another step toward mobile payments when it introduced its Passbook app for iOS devices at the annual World Wide Developers Conference (the announcement starts about 93 minutes into the keynote address.) Passbook aggregates a variety of commerce-related items such as digital coupons, stored-value cards, loyalty points, movie tickets and boarding passes into an easy-to-navigate app. It doesn’t handle credit card transactions. However, it should be a relatively trivial matter to link Passbook to the iTunes account that every iPhone or iPad owner must set up before downloading music or apps to their Apple devices. (For more on the current state of Passbook, see Don’t Call Apple’s New Passbook Feature an E-Wallet – Yet.)
In the keynote, Apple revealed a statistic that hints at its potential to shake up the consumer-credit industry: The company has 400 million active accounts in iTunes, each with a valid credit card number. Four-hundred million is a substantial number, an installed base that any online-payment system would love to have (hello, Google Wallet!). Using near-field communications, in time the iPhone could replace the plastic credit-card as the way iPhone users pay for lattes, groceries or impulse buys. In short, iTunes may be about to graduate from a way of buying apps and music to a way of buying all kinds of things.
That could only be good for Visa and MasterCard, right? After all, the credit card processors would benefit from an increased volume of transactions. But they may not be entirely pleased with an increased volume of transactions from Apple, given the way iTunes handles payments for 99-cent apps and $9.99 albums. Apple aggregates purchases made over several days into batches, reducing the per-transaction fees that it pays to Visa and Mastercard. It gets away with this because, well, it’s Apple.
If Apple really wanted to disrupt the credit card companies, it could bypass them entirely, building its own online-payment infrastructure and offering discounts or other incentives to those who choose it for iTunes and other payments. Apple has the cash stockpile - $97.7 billion by some estimates - to do this. It also has the network infrastructure, and it could work directly with banks to strengthen it.
Would Apple take such a radical step? There are good reasons for Apple to create its own iPay-style platform. It would let the company keep for itself the money it pays to Visa and Mastercard in transaction fees. And it could expand its core hardware business with a new product line: point-of-sale terminals for millions of cafes, restaurants and retail shops.
On the other hand, creating an iPay platform that bypasses credit card companies is fraught with complexities and obstacles. Few companies have even bothered trying, PayPal being a notable exception. Most services, such as Google Wallet, are content to offer a front-end interface that lets users plug into the incumbent credit giants.
To pull off such an ambitious plan, Apple would need to persuade many of its 400 million iTunes customers to trust it to handle payments for everyday purchases. Passbook may be an experiment to test consumer behavior around making non-iTunes transactions on iPhones. But more importantly, Apple would need to navigate the complex world of financial regulations, not just in the U.S., but in every country where it offered iPay.
The announcement of Passbook got Wall Street analysts wondering again about the likelihood of iPay. JP Morgan’s Moskowitz called Passbook a clear precursor to iPay.
Apple doesn’t seem impatient to turn Passbook or iTunes into something big like iPay. But the company’s technology has sprawled into so many other industries that it already has many pieces in place to become an overnight player in online payments. If it ever made such a move, the consumer credit card could go the way of the GPS navigation device.
Source: Apple Wins Patent For “iWallet”
WikiLeaks and its hosting partner DataCell have just announced their intent to file suit in the EU against Visa and Mastercard for blocking donations to the service last year.
The intent to sue for the “unlawful, U.S. influenced blockade” was announced in a press release, included below:
LEGAL ACTION BY WIKILEAKS AND DATACELL AGAINST VISA AND MASTERCARD
Release after Sat 2 Jul 2011 00:00:00 GMT
WikiLeaks and Datacell (a service provider assisting WikiLeaks) are to sue Visa & MasterCard for engaging in an unlawful, U.S. influenced, financial blockade.
On June 9th a the law firms Bender von Haller Dragested in Denmark and Reykjavik Law Firm in Iceland acting on behalf of DataCell and WikiLeaks told the companies that if the blockade is not removed they will be litigated in Denmark and a request for prosecution will be filed with the EU Commission. Visa Europe, MasterCard Europe, and Teller (a Danish company licensed to process transactions on behalf of the card companies) are the subjects of the complaint.
It was pointed out to these companies that their coordinated action on December 7th last year to block all credit card transactions to WikiLeaks and DataCell constituted a serious violation of the Competition Rules of the EU (Article 101(1) and 102). Furthermore, that the actions of these companies have violated Danish merchant laws when they terminated the payment services and by refused to reinstate them.
Visa Europe, Master Card Europe, Teller and Korta where told that if the payment services would not be reinstated and liability for the damages accepted, DataCell and WikiLeaks would file a complaint to the European Commission regarding violation of EU competition laws and file a lawsuit with Danish Maritime and Commercial Court (“Sø- og Handelsretten ”).
Teller has acknowledged that it is ready to reinstate the services as due diligence by the company has not found any violations by DataCell, but, despite this, the company has been ordered by Visa and MasterCard to keep the payment services closed. Visa and Master Card (which have 70 and 25 percent market share in Europe respectively) have not answered the demands or shown willingness to negotiate a settlement.
In light of this outcome DataCell and WikiLeaks will instruct their international legal team to take actions against these companies in the coming days as outlined above. Further actions in other jurisdictions will follow.
Mobile payments startup Square is announcing big numbers today—500,000 Square card readers shipped, 1 million Square transactions in May, and the startup is now processing $3 million in mobile payments per day. Clearly the company is on a roll in terms of traction and usage. And CEO Jack Dorsey is also revealing the next generation of Square. And Square is about to get a whole lot more disruptive.
Today, Dorsey is revealing Square Register, a high-powered point of sale replacement for cash registers and point of sale terminals. And the company is taking it one step further for consumers by launching the Square Card Case, a way for purchasers to access a local merchants’ goods, prices, location, loyalty card and more.
For background, Square offers an iPhone, Android and iPad app which allows merchants to process and manage credit card transactions with a handy little credit card swiping device that plugs into the headset/microphone jack. The device and service is the brainchild of Twitter co-founder and recently appointed product lead Jack Dorsey and Jim McKelvey. And Square recently raised $27.5 million in new funding, and announced a strategic investment from credit card company Visa. In Q1, Square did $66 million in payment volume (the company expected $40 million) and is now in track to process $1 billion in payment volume within a year.
Square Register For The iPad
Square’s COO Keith Rabois tells us that as the startup has created a payments product for small businesses, they’ve learned that many businesses have more needs than simply having a credit card processor. One of these needs is being able to not only accept cards, but also communicate with customers more efficiently. So today, Square is launching this brand new version of its iPad app, Square Register.
Rabois says the iPad app makes these expensive and cumbersome terminals obsolete for merchants. Not only is the reader and app free (and beautifully designed), but the register is designed to help create and maintain meaningful relationships with customers. Historically, Square’s readers always stored every purchaser’s receipt for merchants and allowed merchant’s to send a copy of the receipt to the purchaser via SMS and email. It was fairly simple.
Now, with the upgrade, merchants can send customers a link to download an app on their mobile phone called a Square Card Case. And this gives merchants a whole new level of engagement with their customers. And data is another big component of Square’s announcement—Dorsey says merchants will have Google Analytics style data that merchants can access, such as how many muffins were sold, and to which types of customers, and more.
The Square Card Case For Consumers
As you can see from the image, the Card Case looks like a wallet-like case you would store your loyalty cards or credit cards in. Here’s how it works: when you go to a merchant who is a participating Square users, the merchant will send you a link to download the app on your mobile phone. It’s important to note that the app is not available in the App Store publicly, and at launch will only support iPhones; Android support will be rolled out soon.
Once you’ve downloaded your mobile Card Case, you can fill your case with ‘cards’ of all the merchants you visit and buy from who accept Square. When you click on an individual merchant’s card, you’ll be able to see a map of where the merchant is located, contact information, your own order and purchase history, and receipts with the merchant and a daily live menu of items or services from the merchant. You’ll also be able to see what other customers are buying at the store, and merchants can serve customized offers to specific customers based on their purchase history.
So here’s where things get interesting. In a merchant’s card within the case, you can press a “use tab” button which allows the frequent customer to essentially put a purchase on their virtual tab with Square at the merchant. So once you press that button within two blocks of the merchant, you’ll be able to tell the cashier your name and your card will be charged on the merchant’s backend Square register. Because you are a repeat customer, Square already has your payment information. The purchaser will then receive a push notification when the merchant processes the payment.
Another feature of the newly designed Square is the ability for the payments company to show other merchants nearby who also accept Square payments. As Rabois puts it, “it’s like a curated app store for local businesses.”
At launch, Square’s new register and digital wallet service is being used by 50 merchants across the U.S., in San Francisco, Washington D.C., St. Louis, LA, and New York. In fact, there are merchants in the hall at TechCrunch Disrupt here in New York who will be showing attendees how to use the new version of the service. We’re told that the service will the “thoughtfully” rolled out to merchants in the coming weeks. Participating merchants range from coffee shops to bakeries to flower shops to restaurants to salons.
Square believes that this next generation of the service will become the default way to run a business and a payments platform. Not only does Square give you analytics and insight into how well your business is doing, but it allows local businesses to connect to customers in a way they couldn’t with traditional point of sale systems and cash registers.
In terms of financial terms, nothing has changed. Square will continue to charge the 2.75 percent per transaction fee (the startup dropped the $0.15 per transaction charge for businesses a few months ago). And interestingly, Square chose to refurbish its iPad app into the suped-up register, keeping its Android and iPhone apps as simple payment processors. Rabois tells us this decision was made after seeing the iPad’s succes as a device in retail environments.
In the end, their strategy is based around how they take friction away from payments for local businesses, Rabois tells me. There’s no doubt that this new version of the service will be able to connect local merchants to customers in a way that no payments processer has been able to thus far. We know PayPal is trying to get into local, but Square just beat the payments giant to it with this offering. Not only does it offer personalization for each customer, but Square is now tapping into location, and there is still much more to come, Rabois notes.
One piece of advice to PayPal, Visa, or any other payments giant who wants to be a part of the future of payments: buy Square. Like yesterday.
There is no doubt that mobile payments company Square is on a roll. The company just landed a lucrative deal selling its credit card readers in Apple’s retail stores and is growing at a fast clip. And now the company has just received a strategic investment from a giant in the credit card industry—Visa.
For background, Square offers iPhone, Android and an iPad app which allows merchants to process and manage credit card transactions with a handy little credit card swiping device that plugs into the headset/microphone jack. The device and service is the brainchild of Twitter co-founder and recently appointed product lead Jack Dorsey and Jim McKelvey, and recently raised $27.5 million in new funding. In Q1, Square did $66 million in payment volume (the company expected $40 million) and plans to triple that in the second quarter of 2011.
So clearly, Square probably doesn’t need the cash (Square declined to reveal how much Visa invested). This is a strategic investment, and one that gives Square major clout as a payments product. Simply put, it’s a huge stamp of approval for the startup.
COO Keith Rabois tells us that the investment will not only help accelerate the business, but the partnership with Visa will help spread the word about Square to small businesses. In fact, there are currently 27 million U.S. small businesses that don’t accept credit cards currently. “The best way to grow a small business is to accept credit cards,” he explains, “Square allows these businesses to accept credit cards in minutes with minimal effort.”
He tells me that as part of the investment, a Visa executive will become an advisor to the company. Square will also be adding an exec from bank J.P. Morgan Chase (J.P. Morgan participated in Square’s Series B round) as an advisor.
So why Visa? Rabois says that while Visa is one of the giants in the industry based on reputation alone, roughly two-thirds of transactions using Square’s payments service are through Visa credit cards. He adds that over time, the partnership means that Square can work on making the payments experience better for Visa customers.
For Visa, the investment gives the company access into the innovations taking place within the company and the mobile payments industry. In February, Visa published a glowing post, praising the startup’s product as a “big deal.” Back then, it was thought that Visa could be looking to partner with the startup or even acquire it. And on Square’s homepage, the company depicts a user swiping a credit card on Square’s mobile reader using a Visa Signature card. Interesting that Square chose to feature Visa, when the reader accepts MasterCard, American Express and Discover, which are all widely used across the globe.
Visa has been steadily trying to ramp up innovation within its own payments network, launching a PayPal like payments service, and buying virtual goods monetization startup PlaySpan.
But Visa hasn’t made many investments in companies in its history (the company invested in mobile commerce security and development company Ecrio back in 2007). Mobile payments is a business that a number of players are looking to profit from, including VeriFone and Intuit, and through the investment, Visa is able to gain insight into this emerging market.
Another important angle to note in this transaction is that with the investment, Visa is standing by Square’s security as a credit card reader. Two months ago, VeriFone, which makes a competing card reader, wrote an open letter to consumers and the industry, warning users of a “gaping security hole” in mobile payments startup (and competitor) Square’s hardware. Dorsey shot back, vehemently denying the security flaw and calling out the apparent flaws in VeriFone’s argument.
Still, being accused to stealing consumer card information is a serious accusation and certainly not one that Square wants associated with its name. Visa’s investment in the startup certainly validates the fact that there’s no credit card fraud taking place via flaws in Square’s devices and system.
This has certainly been a eventful first half of the year for Square. Not only has the company signed a retail deal with one of the most well-known retailers in the world, but it has raised funding from a group of marquis investors, dropped the $0.15 per transaction charge for businesses using the mobile payments service, debuted a massive billboard in Times Square, and now has a strategic partner in one of the biggest credit card giants in the world, Visa. Most startups don’t even accomplish all of this in a year.
So what’s next for Square? “Our product can get better,” says Rabois and he along with the rest of his staff will be doubling down on development. In fact, Square is looking to double or triple its engineering and design teams. “Reinventing payments is a difficult experience,” Rabois says. “But we have a lot of things in the works in the coming year.”
Mobile payments company Square has landed a big coup—sales placement on Apple’s online store. And we’ve just confirmed with Square that the startup has a deal for in-store sales as well. Apple will start selling Square devices in all of its U.S. retail stores starting this week.
Square offers both an iPhone/iPod Touch and an iPad app which allows merchants to process and manage credit card transactions with a handy little credit card swiping device that plugs into the headset/microphone jack. Apple has shown some love for Square lately, so it’s not entirely surprising that the payments startup has forged a deeper relationship with the Cupertino-based company. Most recently, Apple CEO Steve Jobs showcased Square’s technology at the debut of Apple’s iPad 2. But to be featured on Apple’s online store and in its brick and mortar operations is a big deal.
This is Square’s first large-scale in-store retail promotion and it landed a huge fish. Millions of consumers visit Apple’s retail outlets each day, and this will certainly translate into more sales and exposure for Square. The device will be only payments product featured in the store, and while display location may vary by store, we hear that Square will be included in the store area where main consumer-oriented accessories are displayed. Apple and Square will also be partnering to host educational seminars at the stores, where consumers can learn how to use the device.
Square’s device is selling at the store for $9.95 but users get a $10 square credit when they sign up for an account and the apps are free. It’s important to note that when sign up for Square on its website, the device is free, and the company only charges merchants 2.75 percent per transaction. You can also purchase the device in black or white (previously the Square devices were only sold in White).
Clearly Square is taking a bit of a bath on the device sales here. Apple is probably taking some sort of cut from the transaction, and Square is giving merchants a $10 credit, so effectively, the company isn’t really making any money. In fact, it appears that Square could be losing money on this. But an endorsement and placement from Apple could boost sales and usage for the payments device so perhaps all will even out in the end. Also, Apple managing distribution and shipping of Square devices means that the startup will be able to give users access to quicker and more efficient delivery operations.
Interestingly, Apple doesn’t use Square in its stores for transactions but perhaps this could change as Square gains more traction and expand with international support.
Square, which was co-founded by Twitter’s Jack Dorsey, has been on a roll of late. The startup just raised $27.5 million in new funding, and is gaining a lot of a lot of buzz, most recently debuting a fairly large billboard in Times Square and announcing that it is processing $1 million in payments per day. Square also announced that it dropped the $0.15 per transaction charge for businesses using the mobile payments service.
COO Keith Rabois told us in January that the startup is expected to process $40 million in transactions in Q1 of 2011 and is currently signing up 100,000 merchants per month. That’s compared to 30,000 monthly signups last Fall.
I think there’s no doubt that with its latest deal, those numbers should multiply pretty quickly.