With much excitement, I welcomed the news that Square had joined the P2P game with other players like PayPal. I am a big fan of the Square Dongle . I admire the simplicity of how it solved the problem for a niche market of small merchants who could not process credit cards.
Once I dove into the announcement and started reading the details of how this worked, I got a little queasy. With some knowledge of email marketing and how it can get abused, I am a little weary of a P2P scheme that tries to use email as an orchestration mechanism for sending money from one party to the other.
In the meantime, many of my FinTech friends were raving about the simplicity and beauty of the service. I therefore decided to give it a test drive. I downloaded the iOS app, launched it and was greeted with a screen to enter the amount I wanted to send. Square cash, by default launched the mail program and created a mail template where the recipient email and message can be customized.
Without diving too much into the mechanics of how this works, I would like to present my observations below. (If you are interested in reading how it works, you can find it various places like this one).
I tried sending $10 from one of my Gmail account to another using my Bank A Debit card to my Bank B Debit card. Once I opened my mobile mail app, I saw quite a few emails from Square. Since this was a test, having an unified inbox app that had access to both the email accounts I used for testing was a mistake.
I ended up getting a total of 8 emails from Square, which added some element of confusion. (I do understand this will not be the case in a real world scenario when you try to pay someone else). After sorting through the emails and completing the required steps from the sender’s perspective, I was able to transfer the money to the other party. From a receiver’s perspective, I got an email from Square instructing me to either use a debit card or to set up a bank account to receive the funds.
Interestingly Square cash runs the whole transaction on a Visa/MC debit backbone API. This scheme seems to work very similar to how you would pay at a POS terminal using your debit card. (More details of this API can be found in this Quora thread).
I got a purchase alert SMS from Visa that my debit card was used at SQC*”DEVA ANNAMALAI in San Francisco US” for the amount I sent as a Card Not Present Transaction.
I logged into my receiving account and saw something interesting – the $10 showed up as a pending transaction. Note the description shows up as a “REFUND”. This further confirmed my suspicion that Square processed this transaction as merchant refund into a debit card.
While the common user on the street would quite not care about the mechanics of how all of this works, this did raise some questions which I wish Square would provide answers to get more transparency/clarity on this service:
1. Square Cash Terms and Conditions dictates that as an end user, you can only create one account. (I am assuming it is a debit card/email combination to create the new account).
2. The T&C frequently mentions the term Square Cash Account. My interpretation of this is Square creates a Card on File Account for the email address which is being used to send the money along with the Debit card. The T&C does not clearly state that, but my best guess is Square is using this as a strategy to compete with PayPal and Google Wallet in increasing its consumer user base. (Check Cherian Abraham’s excellent analysis on his blog post about this topic.)
3. Now the big issue I have with this approach is PayPal and Google Wallet allow you to manage the account by allowing you to store various payment cards in the wallets. With Square Cash, the user seems to be stuck with one debit card to their account. I have no idea what it takes to switch this card on the file to a different card (Or) How someone would go about asking Square to remove their stored card/account. (Some folks are not comfortable for merchants to authorize a direct pull from their bank accounts).
4. The legal age to use Square Cash is 18. I wonder how many under age users who have debit cards will be using this service to send money to their friends. I don’t think most folks in this demographic would even bother to read the terms and conditions.
5. I tried sending money to two of my friends at the same time using the Square Cash app. The app informed me that cash was sent (allowing me to type in two email addresses at the recipient field). However I got an email from Square Cash informing that they could not understand the request and I need to send money to only one recipient at a time. Gmail interface to send money via email is clear about the fact that you can only send money to one recipient at a time. It also lets you pick your funding source, the list of credit cards you have on Google Wallet as well as the Wallet Balance.
6. I believe email as a medium to communicate with friends and family is losing its popularity. When was the last time your friends or family members sent you an email? I am sure we use emails to receive statements, notifications and other random marketing emails. Using emails to keep track of P2P transactions seems weird to me. This is my personal opinion and Gen-Y may prove me wrong 🙂
7. I am also worried about the security aspects of trying to send money via email. Square has informed that they take security very seriously and have extensive fraud monitoring in place. However, mail service providers like Gmail and Yahoo by default have users signed in for extended periods of time in a web browser(Chrome being a good example). What if a malicious user who may have access to your computer sends themselves money and deletes the email thread? Square does mention you can add dual authentication using a mobile phone number but it is not a mandatory step. This probably is the most riskiest aspect of using the service IMHO.
8. Phishing emails – Most users who still open emails click on a phishing scam without thinking twice. Expect to see a lot more Nigerian royals sending money to your account 🙂
9. Gmail also starts categorizing some emails from Square in your Inbox and some in your Promotions tab. Not a deal breaker but something to be aware of.
10. With so many issues plaguing email in general, it leaves room to questions about why Square chose to use email as a protocol to orchestrate money movement. Email has an inherent benefit of being in the address book for all your contacts. Launching the app to build the email template seems redundant. Since they already have an app, they could have taken a secure network route like Dwolla to initiate and complete the funding request. The app could also have access to the address book! (I get it, at that point it becomes Venmo/PayPal/Dowlla 🙂
There are some interesting possibilities like paying a group of friends and adding multiple payments accounts. For the initial launch, Square has decided to attack the basic use case. If Square had partnered with a company like Fiserv to provide real time P2P, it would have been a killer proposition.
Square Cash may be successful in demography of techno-savvy crowd in metro cities and college communities. It would be interesting to see how long it would take for something like this to hit mainstream adoption. I am intrigued by Square Cash and would love to see the usage and its evolution. God forbid we all know that the US Payments system needs a reboot to enable more modern user friendly real time ubiquitous P2P options. Innovations like this would help us get there even if this is a first step.
Update 1: Marcelo Cortes was kind enough to share the link where you can update or unlink your debit card from Square Cash Service. When I tried using it, I had to perform a password reset to register myself. I appreciate minimalism, but this needs a little more clarity.
Update 2: Ron Shevlin raised an interesting question about Account to Account (A2A) money movement using Square Cash. This would be a very useful use case, but if we go by the Terms and Conditions, a customer can only create one account which may prohibit it.
Update 3: Another possible interesting use case is Bill Pay. If Square manages to partner with Billers, a statement email sent from the biller can be replied to pay the bill by CCing firstname.lastname@example.org. Obviously some details need to be worked out about how to track the payment amount and account number details but I am sure the smart folks at Square will figure it out 🙂 – Now that is something which eliminates friction and opens up a new market!