Jack Dorsey, the creative talent behind Twitter, has clearly taken a leaf from Steve Jobs’ playbook. But revolutionising in-store payments will be a lot harder than persuading people to pay for digital music.
Dressed in jeans and black sweater (though with a zipper at the neck), Dorsey on Monday did a passable imitation the Apple boss as he unveiled Square’s ambitious new approach. To its existing credit card reader, Square has added a cash register application that turns an iPad into a new point-of-sale device, along with a smartphone app that gives consumers a way to pay using their credit card accounts without having to actually get out a piece of plastic.
Now also back as head of product development at Twitter, Dorsey knows how to create stylish and simple-to-use applications – and how to streamline potentially complex technology ecosystems like this (as Jobs did with the iPod/iTunes combination of hardware, software and services).
In the new payment ecosystem envisaged by Square, merchants will use iPads instead of cash registers and credit card terminals (with classic Jobs sweep, Dorsey declared that these familiar pieces of retail hardware will become obsolete).
Customers who load an app onto their smartphones will be able to open a direct payment connection to the merchant with a single touch (Dorsey likens this to keeping a “tab” at a local bar). To complete a purchase, which is made from an existing credit card account, the merchant simply “rings it up” on the iPad, and an electronic receipt is sent by text to the smartphone. That makes it similar to the mobile card readers used by the staff in Apple stores, though with no need to swipe the actual plastic.
Harping on the Jobs parallels, Dorsey declared: “It makes buying a cappuccino as easy as buying a song off iTunes.” And, in case the point was lost: “This makes the experience of buying and selling magic.”
So how will Apple take to the idea of its hardware being used as the infrastructure for a new payment system where most of the value accrues to another company? Won’t it also want a piece of the action (as media companies have found with the App Store’s new subscription fee)?
When I asked Dorsey about this, his answer sounded a little disingenuous: “They’re selling virtual goods, they’re not selling hard physical goods. They’re not really focussed on real-world objects.”
But couldn’t that change? Dorsey’s answer is that there simply isn’t enough margin to go around: “As a merchant, would you be willing to pay 30 per cent on your cappuccino sales? Or 5 per cent even? If you ratchet the cost up and up and up then it becomes more and more of an issue.” But if its payment system is a success, that is hardly likely to stop Apple asking for slice of Square’s margin.
A bigger problem than Apple will be persuading enough merchants – and consumers – to use the service. Square starts out with the classic chicken-and-egg problem.
When Steve Jobs unveiled iTunes, the big music labels had already lined up behind the service, giving consumers a compelling reason to use it. But Dorsey is starting out with only 50 small merchants. Without more merchants, it will be hard to get consumers to use the service, and vice versa.
Most established retailers have already invested heavily in technology, so getting them to start from scratch will be a challenge (analysts we spoke to saw this as the biggest challenge.)
Dorsey is counting on viral adoption to overcome this, starting with small merchants who have either not accepted credit cards before or who want to build closer relationships with regular customers. As more consumers start to use the service, he hopes that larger merchants will eventually also see the attractions.
This is the opposite of the iTunes approach. According to Dorsey, Apple didn’t have the option of going direct to the artists: it had to deal with the big music labels. Square is counting on a much wider groundswell of support for its own breakthrough.
