Square has been “not so quietly” conquering the mobile payment space. They have clearly recognized that mobile hand held devices are where the greatest potential for growth in terms of services and transactions is moving, and moving quickly. This recognition and positioning is going to be disruptive to many established, up stream payment providers, particularly but not limited to PayPal and Verisign. It will also have downstream effects that will impact many players at the point of sale, with implications that will be far reaching for how individual merchants and small businesses are able to take payment for their goods and services. Ultimately, this shift will have a very meaningful impact on how much or little of a percentage of a given sale the merchant will have to relinquish to payment carriers such as the Visa and Mastercards of the world. Most likely, this will bring down the cost to process a payment, thus making it more attractive to more merchants to use than the traditional credit card payment players.
Recently, Square took aim at the NYC taxi system and is challenging the almost decade long grip that VeriFone and Creative Mobile Technologies have had on this space by offering an alternative to cab drivers in terms of how they can take payments from their riders. What is notable about this development is that Square is going into a space that these other console providers, VeriFone and CMT, have monopolized for the past 8 years, and have done so at the cost of Taxi drivers, by charging such high percentages on carry charges for processing credit card payments (something like 5%), which i know has been the biggest complaint that taxi cab drivers have had when it comes to the downside of riders using credit cards to pay for their rides. And this is not just a complaint aired by NYC cabbies, other cities have similarly discontented drivers (caveat: on balance, taxi cab drivers have seen and recognize the benefits of credit card usage in cabs, that is why Square’s offering is all the more compelling, it reduces the greatest area of friction between drivers and the payment method, while maintaining the things that cabbies like most about being able to accept credit cards — greater volume of riders and larger tips). I have to assume that Square is offering to process these payments at significantly lower rates and this is probably the single biggest reason why the TLC has gotten on board with this pilot program, which grants Square unprecedented access to this very lucrative network.
And what is probably most compelling about this development is that Square seems to be willing and able to tailor their payment software to the needs of the partner with whom they will be working. From a bird’s eye view, they are quickly becoming a viable alternative to PayPal, which has dominated the online payment process for more than a decade. By striking at the core of PayPals most notable weakness, which is its insistence on a more rigid structure that forces users, merchants, etc. to have to choose from a limited number of set payment structures, may put this model in real danger of being overtaken by the likes of more flexible and “merchant friendly” payment systems.