Hip To Be Square
DeWayne is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When Huey Lewis first sang those lyrics in 1986 the only mobile payment transactions taking place were at the end of a cab ride or when you bought your special lady a Push-Up from the back of an ice cream truck. While it's still a relatively new concept here in the US, mobile payments via cell phone have been common place in third world countries for years. Half of Africa's one billion population has a mobile phone – and not just for talking. They use mobile phones on a daily basis to pay bills, move cash and buy basic everyday items. The power of telephony is forging a new enterprise culture, from banking to agriculture to health care.
In 1998, there were fewer than four million mobiles on the African continent. Today, there are more than 500 million. In Uganda alone, 10 million people, or about 30% of the population, own a mobile phone, and that number is growing rapidly every year. For Ugandans, these ubiquitous devices are more than just a handy way of communicating on the fly: they are a way of life.
The most dramatic example of this is mobile banking. Four years ago, in neighboring Kenya, the mobile network Safaricom introduced a service called M-Pesa which allows users to store money on their mobiles. If you want to pay a utilities bill or send money to a friend, you simply dispatch the amount by text and the recipient converts it into cash at their local M-Pesa office. It is cheap, easy to use and, for millions of Africans unable to access a bank account or afford the hefty charges of using one, nothing short of revolutionary.
How is it then, we the tech savvy, broadband generation in the US got left behind? There's no shortage of reasonable arguments or slick hypothesis, but let’s stick to the facts. It is estimated that by 2015 global mobile transactions will exceed one trillion dollars. According to California-based mobile-banking innovator Carol Realini, executive chairman of Obopay: "Africa is the Silicon Valley of banking. The future of banking is being defined here… It's going to change the world."
Last week the New York Times wrote, "Cash moved one small step nearer to its deathbed with the announcement Wednesday that Square, the mobile payments start-up, would form a partnership with the Starbucks (NASDAQ: SBUX) Coffee Company."
Turning the cell phone into an electronic wallet in the US has been an uphill battle even for the big guns. Here’s an interesting excerpt from Time magazine about the growth of electronic wallets:
"Shoppers wanting to get their caffeine fix online at Starbucks.com now have only one path to take when they pay for their beans..."
But wait, here’s something a bit more revealing about this quote:
"If they are already registered with Passport, Microsoft’s (NASDAQ: MSFT) new identity-verification program, they can use it to complete their purchase."
You see, this quote is actually from a 2001 issue of Time, when folks were first predicting that electronic wallets would take over our usage of traditional credit and debit cards. It’s always hard to predict how fast new technologies will be adopted by consumers and, in the end, Microsoft’s Passport proved to be a disappointing flop. Fast forward a decade and Google (NASDAQ: GOOG) launches their Google Wallet application to manage payment, loyalty and special offer information. Google soft pedaled the launch to see if consumers would bite and so far it's been a non-starter. Ten months after Google introduced Google Wallet, enabled by near-field communications, or NFC technology, they are still struggling to find carrier and device partners as well as retailers willing to support the new technology.
Enter Jack Dorsey, Howard Schultz and Starbucks…
Once again, it's hip to be Square.
In case you somehow missed the media melee', here's the story straight from the Starbucks Newsroom:
Starbucks Accelerates Mobile Payments Leadership by Choosing Square for Payments Groundbreaking Partnership to Stimulate Small Business Growth and Enhance Payment Experience for Millions of Customers
No doubt this is Big News. The US will now quickly catch up with mobile payment trailblazers like Africa and India. There is however, a twist in the road up ahead, where it gets a little bit weird - think "Minority Report."
This won't happen immediately but later this year when Starbucks turns on Square’s full GPS technology, the customer’s phone will automatically notify the store that the customer has entered the premises and the customer’s name and photo will pop up on the cashier’s screen. The customer will give the merchant his or her name, Starbucks will match the photo on the screen with the person at the counter and the payment will be complete. Could it be more Orwellian? We’re just getting started.
Back home in Topeka your regular order is a Venti, sugar-free, non-fat, vanilla soy, double shot, no foam, extra hot, Peppermint White Chocolate Mocha with light whip, extra syrup and a hint of cinnamon from Madagascar. The problem? You're not in Kansas anymore.
You're on business or vacation, somewhere between Paris and Tokyo, when the caffeine crave grips you. No problem, you spot the familiar logo on the signpost up ahead, step through the doorway and guess what....? "They Know". No fumbling with your guidebook or pocket translator. They know. This experience will either make you feel warm and fuzzy or extremely creeped out.
Really Big News!
Now let's get to the side of the story that hasn't gotten nearly as much airplay, the Really Big News. The real winners here are small business owners around the world. What Square has been doing in stealth mode behind the scenes for the past 2 years should have major banks and their merchant services divisions shivering in their jack boots. You see, back in the day before Jack Dorsey aka “Robin of Twitter” arrived, the procedure for obtaining a merchant account was a rather humbling, grueling, and often humiliating experience. In fact it still is unless you know Jack.
The first barrier to entry as a small business owner is that you the wannabe' merchant must have a FICO number sweeter than the beverage mentioned earlier to even qualify for an account. The process takes 1-4 weeks, the paperwork is formidable and the fees can be enormous. Let's not forget the monthly lease payment on the little swipe machine all based on the presumption that you are actually approved. Square takes this huge disastrous process from 1-4 weeks down to 1 minute. That's right, you submit your 1 page application on-line and in 60 seconds you have your answer. Square approves 95% of everyone who applies. Guess what else; Jack even gives you the little magic Square to process the payments with, for free.
True story! After a 60 second approval process, little Square elves in the fulfillment center are popping one of those magic Squares in a cushy padded envelope with your name right on it. Once you get it, you’re in business. Wherever you and your cell phone are, you can now process your customer’s payment.
In the store? Yes.
On the job site? That's right.
You've not only gone mobile, you just went global. Some merchant processors hold your funds for up to a week before they are made available. Jack on the other hand, Squares you up the very next day.
You've got money!
Congress and the Fed have spent the last few years and several trillion dollars attempting to put liquidity into our gummed up credit mechanism. Along comes a man named Jack with some really smart nerds and he turns the entire banking industry on its head. Obviously this has to cost the merchant a pretty penny right?
- 60 second approval
- Free payment processor
- 95% approval rate
I can barely type for grinning. Square charges none of the normal fees you would expect with a merchant account. No minimums, no per transaction fees, no interbank fees, no Libor rate, no joke.
What's the catch? The catch is that we as a nation are too long on government oversight and too short on vision. Not only has Square squirted the oil of life into our antiquated credit machine, they have reminded our nation what true entrepreneurial spirit can do. In the process, they have opened the door for micro businesses from Alaska to Zimbabwe.
The next installment of this series will cover the security side of being Square.
For now, hip-hip-hooray to Jack Dorsey and his merry band of nerds. I would love nothing more than to buy them all a Grande' in a Venti cup (on Howard’s tab).
CFRN has no positions in the stocks mentioned above. The Motley Fool owns shares of Google, Microsoft, and Starbucks. Motley Fool newsletter services recommend Google and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.