The Bankwatch

Tracking the consumer evolution of financial services

Implications of the Square/ Starbucks arrangement for Banks

Reading more about the Square/ Starbucks deal, this could be a bit of a payments game changer.  Here is why after the quote.

Mobile innovators Square and Starbucks team up | finextra

To bolster its commitment, Starbucks is investing $25 million in Square as part of a series d financing round widely tipped to value Dorsey’s firm at $3.25 billion. Starbucks chairman, president and CEO Howard Schultz will join Square’s board.

Some reasons this is a game changer:

  1. Scale:  the fractured nature of new payments initiatives have been small, local and full of the payments industry preferences of one method over another.  There is still a bit of a beta/ vhs debate in payments going on.  Square have cut through all that by combining a simple platform (Apple ipad/iphone) with a very simple hardware accessory and managing the rest behind the scenes in software.  By aligning with Starbucks this technology can eventually be used anywhere, although I must note today the US Starbucks card does not work in Japan Starbucks for example.  So this could be a US only initiative.
  2. Disruptive:  The current models of credit and debit cards are well known and the next step was assumed to be chip card enabled digital wallets of some type.  Dave Birch asked somewhere if this is the swan song for NFC.
  3. Simple:  I looked over the should of a developer recently as he tested swipe hardware on an ipad.  The ease with which he could read drivers license, credit cards, debit cards etc., removes all the mystery.  The ipad hardware platform makes it all so easy, portable and visible.  After this its all about smart software and alliances with the right partners.
  4. Access:  Square blows through all the wires and terminals on the merchant counter and replaces them with one portable device.  Its only a matter of time before we see a Square chip card reader.

Relevance to Bankwatch:

The current credit and debit models assume a moneris/ chase/ paymentech type infrastructure as access to the payment network.  Square blows through all that and puts the payment network in your hands wherever you are holding a smart phone or tablet.  Picture the mess of terminals and acquiring gizmos on the merchant counter in Asia as our good fiend Dave Birch seeks the ultimate payment access and replace all that with something this simple.

For now its only for mag stripe so this is not threatening debit /credit yet outside of the US.  But the combination of Square and iphone/ipad is powerful.

This is the challenge for banks and digital wallets.  Square does not threaten banks, yet.  Banks still get the traffic from Square, and the bank with the Square merchant account is quite happy. 

The bigger picture for Banks remains how to bring a highly complex technology that is named a digital wallet, into such simple terms and availability as Square.  There is a long road to go there, but meantime expect to see Square and others in US stores soon.

Written by Colin Henderson

August 8, 2012 at 23:28

Posted in Uncategorized

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