Payments processing got a new twist with Square Cash and $Cashtags

The one sure way to know that an industry is on the cusp of disruption is when you start to see fresh ways of looking at an age old problem get transformed through something so simple you just say 'yes.' Financial services is certainly on that path. Check Stuart Lauchlan's story about Metro Bank for example. Now we see Square adding a fresh twist to the payments processing market with SquareCash and $CashTags as an identifier in a mobile method of safely transferring money between anybody. But is it a limited play?

Square has launched Square Cash, available through its cash.me site. It's a brain dead easy application to use. Enter your phone number, get verification via SMS and you're ready to go.

Want to pay someone? Easy - enter there amount, select the person from your phone contacts, provide a relevant description, enter your CCV number from the back of your chosen debit card (no credit cards) and hit send. Provided the person receiving the funds is a personal contact rather than a business then Cash is free to use. Receiving is just as simple.

The kicker is that the recipient must have set up a Cash.me account (mine is $DenHowlett if anyone fancies lobbing me a few bucks...errr...thought not ;) ) so from that perspective, Cash is a closed network and is currently only available in the US for US domiciled bank accounts.

The beauty is it is not only simple but secure. I don't need to know my recipient's phone number, I don't need to know anything about their banking arrangements. I just need to be sure they're in the SquareCash network and limit to $250 per transaction. Is this enough for the service to go viral and act as the kick off point for business transactions? Square has covered that as well, opening up Cash to business for transaction fees of 1.5%, well below the PayPal figure of 2.75%.

If you want to use it for business then right now, it is hard to see how it will work for hard goods. There's no way to directly tie Square Cash back to invoices for example and as a business, Square needs to collect more information like SSN and phone number.

Others have noted that Square, while known for its cute hardware reader isn't occupying prime position when it comes to users on the network. Mike Isaac at the New York Times noted for example that:

The move contrasts with other companies. Peer-to-peer payment apps like Venmo, owned by PayPal, have typically levied no fees, sacrificing revenue for the chance to bolster their user bases. As eBay Chief Executive John Donahoe recently noted, Venmo is highly popular with young audiences, yet brings in no money.

Square Cash will still be free for consumers to use. The company believe its low transaction fee will entice businesses to accept and promote Cash, as it is below the 2 to 3 percent fees businesses must pay for processing credit and debit transactions.

Square contends its processing run rate is around $1 billion.This pales against Venmo, which looks like it will head north of $3.6-4 billion in volume this year. Hardly surprising for a service that's free. And this is where I think life gets more interesting.

Businesses of all stripes have become fed up with the Visa/Mastercard taxes and lack of real fallback when things go wrong. The same argument or at worst a very similar one can be laid at PayPal's door where chargebacks and claims are continuing points of contention. Neither Square nor Venmo make promises in that regard  but then in Square's case - the use of a Cashtag to identify someone means you are less likely to make a mistake. I think.

Then there is a the ever present specter of Facebook with its planned payments system being tacked onto Messenger. While some go 'OMG' Forbes contributor Trefis has an interesting if speculative take:

...the feature could help strengthen engagement and advertising business on the platform, in our view. Holding payment details for millions of users, could potentially lead to conclusion of sales on Facebook’s platform itself, and this could propel ad pricing on the platform. Presently, upon clicking ads, users are generally directed towards third-party sites, where they complete their transaction process.

Contrast this with the view I received via email pimping SunTec's stuff:

Although Facebook, which is applying for a banking licence, may attempt to attract digital consumers to use its services, banks will always be one step ahead as they possess all existing data on customers and still have the proven track record of delivering financial services to customers.

The key point here is banks still hold the relationship with the customer, even though some are making tweaks to ensure customers have convenient, anytime access to their accounts.

I'm not buying this argument although I'm sure SunTec does a great job for its customers. Yet time and again we hear that customers are thoroughly disgruntled with their financial services providers for one reason or another. In that, we all have war stories to tell and the notion that the relationship exists let alone exists as some happy harmonious object is fantasy.

Yet another take - this time from fintech veteran Bernard Lunn:

Rather than looking at their internal systems as the only source of their IT competitive advantage, Banks should look at the whole Internet-scale ecosystem of the Programmable Bankas the “IT gift that keeps giving”.

The key to seizing that advantage is to put yourself in your customer’s shoes and to address the integration and pain points that customers have with the startup point solutions. Follow the early adopters as they work hard to get real value from these emergent Fintech services.

My take

• You've gotta love the notion of a 'cashtag' - great marketing idea.
• Payments processing is a huge business that is ripe for disruption. PayPal started the ball rolling and look what that led to? SagePay was a great acquisition and from what I know is leading any growth that Sage sees. But these are old model systems baked back in the day when mobile was not even at first base as a smart device.
• Square is on to something here with an innovation that is obvious once you see it. But even then, what I am seeing is very much the early part of the first inning on 21st century financial services.
• Tying into systems of record and not just being the processor will be a requirement - or get acquired as part of a much larger ecosystem for this to be monetizable in the long run. In that sense it's not clear what any of the providers' end games really are.
• The mainstream banks are well behind the curve on usability and should be looking at these types of solution as the bellwether for the possible. They're not and therein we could see some spectacular casualties.