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Why Square Wallet failed, and why Coin card is next...

Square's recent troubles are not exactly a secret. Wall Street Journal published a detailed analysis on the 21st of April this year, detailing Square's financial troubles and their rapidly shrinking cash position. Square took on a $100m debt financing option earlier this year, but even with that option, WSJ and The Verge reported that they only had about 9 months of operating cash before they hit "predetermined 'cushion' of funds set aside as a last resort." To add to their woes, Square was called out on removing Square Wallet from the iTunes and Google Play stores today. While Square Wallet is not Square's core business (I would argue Square Register with their dongle still is), the app was intended to be the next big thing in payments. While Square is repositioning their platform around their "Square Order" app, it is clear that the wallet app didn't take off. 

It wasn't long ago that Jack Dorsey, one of the founders and the CEO of Square, was being hailed as the next Steve Jobs! So what happened?

As with many of the wallet and payment plays out there today, Square bet that giving a store attendant or barista your name, was way cooler and easier than whipping out and swiping a plastic card or paying using cash. Square Wallet's bet was that making your payment easier, was enough and they even had the likes of Starbucks partnering for their experience - which was quite an endorsement! It clearly wasn't enough. 

While the Square Wallet worked well, at my local Gregory's Coffee in New York, I still find myself swiping my Moven card because it is faster than firing up the Square app and waiting for it to find the store, etc. The value of the Square Wallet experience versus the card swipe wasn't enough of an improvement to warrant a behavioral shift in payments.

Google Wallet has faced a similar hurdle. Shoving a plastic card proxy in a mobile wallet is not enough. Offering me an iteration on swiping a card, or offering me a better card proxy doesn't change my behavior. 

Starbucks, who theoretically was going to be Square's next big break as a US retail partner, hasn't ended up rolling out Square across North America, because their own solution to the mobile payment problem has been far more successful at changing behavior than Square's Wallet approach. 

Today 10 million customers use Starbucks’ mobile payment and loyalty app program with more than 5 million transactions every week in the US. This has resulted in billions of dollars of funds being deposited onto Starbucks cards (or their app) annually and Starbucks claiming they made $1 Billion in margin just off mobile payments alone last year. But the Starbucks App offers a more compeling reason to switch payment behavior than just a bar code/app triggered payment.

The Starbucks App, while allowing a frictionless in-store payment, also provides for loyalty, access to free deals in-store (like music and app downloads), and has a regular enough use case that if you frequent Starbucks is an easy enough adjustment to make. The value exchange or trade off is clear. Your coffee doesn't cost you any more, infact most probably it will cost you less over time, but while you are standing in line waiting Starbucks is engaging you with other elements via the App and are giving you a number of strong incentives to use the App. 

The key is that Starbucks' Mobile App's value exchange is part of an overall brand engagement model, and not just about the payment.

This is where the future of payments behavioral shift lies - in engagement. There needs to be more incentive than just an easier payment, because the current payment models aren't that significantly broken in-store (ACH or bank-to-bank might be a completely different story especially in the US).

It's also why the likes of Coin card is dead in the water before it starts. The ability to consolidate my cards onto one device, but still requiring a fair amount of work to switch, let alone the $100 bi-annual fee, is simply not enough to warrant a beahvioral shift. There's just not enough value to offset the current payment paradigm and while the cool factor might get an initial spike in interest, it doesn't solve the engagement problem... at all. 

Starbucks has the value of the brand and total in-app/in-store experience. Uber has the value of a super-easy payment, combined with a much better Taxi experience. The likes of Simple, Moven and Soon are fundamentally trying to change the value of the day-to-day bank account experience, such that the value of the bank account is no longer about a value store and payment artifact alone, but a more compeling daily use case. 

Engagement is the future of the day-to-day payment experience for merchants, issuers and banks, but these players all will be relying on mobile as the platform for that engagement in the medium term. The likes of Square and Coin Card are not trying to solve the engagement problem, they were/are trying to solve a payment friction problem - a problem which realistically just isn't bad enough to warrant a behavioral change for most consumers. 

Don't get me wrong - in 5-10 years we'll all be paying with our smartphones, but not because I get to put a plastic card in a mobile wallet, or I can use my face or name to authenticate the purchase. The lower friction needs to be married with greater value around the payment to compel a behavioral shift. 


Comments: (10)

Paul Love
Paul Love - Konsentus - Nottingham 14 May, 2014, 13:29Be the first to give this comment the thumbs up 0 likes

Great aticle and analysis Bret,

I think the success that Starbucks are seeing is because they have not invested in a new payment method, but they have invested in their relationship with their loyal customers.

A meaningful relationship (by enriching, experience, etc.) not only drives short term usage, but also longer term loyalty. 

For Starbucks their business is selling coffee to customers, the Mobile App is now another valuable weapon in their armoury.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 May, 2014, 19:25Be the first to give this comment the thumbs up 0 likes

I think it's a generational thing. My GenY nephew hits a button on his Webmail, selects a file from his hard disk, stares at the screen for the next 5-10 minutes that it takes to finish attaching a large file to his email, before he can hit the Send button. Having been initiated into email via a desktop client like Outlook - where I simply copy-paste the file and hit the Send button and move on - I find the Webmail procedure to be excruciatingly painful.

In the same way, my nephew's set will find it perfectly natural to fire up a mobile wallet app, wait for several seconds / minutes to locate the store, all for the pleasure of using a mobile phone to make a payment unlike me who'd find it much easier to whip out my wallet and use my plastic card.

Personally, SQUARE Wallet should've targeted the 18-25 years segment. It failed because its promo videos featured people who looked to be in their late 20s or early 30s.

Talking about Coin, an overwhelming majority of readers who took the survey on my blog post said they'd pay not more than US$ 10 for it. If the company sticks to its $50 / 100 price, I agree that Coin's going to be DOA.

Brett King
Brett King - Moven - New York 14 May, 2014, 22:201 like 1 like


Maybe, but the generational thing doesn't explain the success of the Starbucks app as it stands today, nor does it explain the success of Kindle, Spotify, iTunes, etc. Behavior shifts across the board when it is compelling, Square Wallet wasn't compelling enough because shifting from a swipe to a tap or a face authentication isn't exciting enough to warrant a wholesale change in my behavior.

A Finextra member
A Finextra member 15 May, 2014, 10:561 like 1 like

We all continuously change our perception/vision, it's a natural process. Brett is happy to swipe his Moven card now, yet less than a year ago he was adamant during our heated debate that Moven should be card-free... Tempora mutantur.

It's always easy to have a clear 20/20 hindsight. Should Moven fail, few would doubt the conclusion that it was just a "better bank proxy" and that consumers don't need "day-to-day bank a/c experience"...

My point is simple: any true disruptor will face setbacks and failures. It's part of the game. Especially when we are talking about fundamental "tectonic" shift in behavior.

Yes, there have been several high-profile flops in mobile payments (G, Sq, Clinkle, etc). Likewise, there were tons of MP3 players not going anywhere fast, with geeky appeal and limited value proposition. Then Apple came along and the rest was history. It was not about MP3 ("mobile payments"), it was about UX, ecosystem and business case.


Brett King
Brett King - Moven - New York 16 May, 2014, 21:55Be the first to give this comment the thumbs up 0 likes


Saying "I'm happy to swipe my card" is not correct. Gregory's Coffee doesn't have a contactless POS so I can't use NFC there. Moven is card free for 25% of transactions in the US, which is more than 25x the national average of contactless transactions. 

My advice on payments has been absolutely consistent. We don't need sexy payments, it is what happens before and after the payment which will be the game changer. Remember the disappearing payment post?

My line on this has never changed. Please don't twist my words to fit an argument you are making, which I don't understand.


Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 17 May, 2014, 13:01Be the first to give this comment the thumbs up 0 likes

When IBM sold off its PC business, it didn't mean that PCs were dead. The fact that Lenovo took it over and has turned it into a profit machine doesn't mean that PCs are thriving. IMO, success or failure of an individual brand (iPod, Amazon) does not reflect the fundamental validity or otherwise of the generic product (MP3 player) or business model (online). It means largely that the said company did a great or lousy job.

I thought you'd unequivocally written off swipe when you'd written, "So does this mean there's life left in cards? Not a chance." Many years later, your stats seem to imply that contactless accounts for merely 1% of card transactions. To me, that suggests that swipe is very much alive and kicking. 

If the payment itself is irrelevant, the genre "mobile payment" should become defunct as well - nothing invisible deserves a whole product category named after it. The spotlight should shift to "mobile loyalty", "mobile engagement", etc., if those are the only things that really matter. The same way it's called "smart meter", not "smart electricity". Starbucks and Uber are invalid lighthouses for mobile payments. 

A Finextra member
A Finextra member 17 May, 2014, 13:31Be the first to give this comment the thumbs up 0 likes

Brett, my argument was simple: it's OK to be wrong, especially with emerging technology. 

Ketharaman, I am not sure I agree: sometimes a single player (e.g. Apple) opens up a whole new industry (e.g. mobile music or smartphones). Take wearables as an example: we can argue about it until the cows come home, yet Apple, Moto and Samsung keep pushing ahead and the market gets formed. 

Hence, it's not necessarily about wrong approach or product, it's about being too early to the market (plus execution, as you pointed out). It's the second mice that gets the cheese, and pioneers are the guys with arrows in their backs (I have a few in mine...)

A Finextra member
A Finextra member 17 May, 2014, 13:35Be the first to give this comment the thumbs up 0 likes

2012: "The likelihood is that the digital wallet, whether via a smartphone initiated payment or simply built contextually into shopping experiences, has got too much momentum now to save the [card] paradigm." (Thank you for the pointer, Ketharaman)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 17 May, 2014, 20:09Be the first to give this comment the thumbs up 0 likes


Steve Jobs was named as the Best CEO of the Century, credited for disrupting not one or two but three different industries. Therefore, Apple is perhaps an outlier that can't be treated as representative of the whole world of business.

While a single player may open up a whole new industry, that doesn't automatically guarantee success for every player that enters that industry. Banks have been making huge profits in the credit card industry but SQUARE makes a whopping loss.

The converse is also true: For every Blockbuster that failed in brick-and-mortar, there's a Warby Parker that began as a pure play online player but has now decided to open physical stores.

Brett King
Brett King - Moven - New York 18 May, 2014, 17:381 like 1 like


We both know where you guys stand. You know where I stand. My view is that there is no way that we will meet in the middle, but I will meet you at the cardless destination...

The fact is clear. Uber, Starbucks, iTunes and other mobile wallets or payment apps have shown that mobile payments are mainstream and are increasing in velocity faster than any other transaction modality. Using the US as a case in point is crazy because they are 10 years behind the rest of the world. Let's talk UK, Australia, Singapore, Hong Kong, even Poland for goodness sake and contactless is already well established.

My points on value add before and after the payment being the threat to the swipe has been absolutely consistent. In fact, read BANK 2.0 authored in 2009 which details this, including the predicition that by 2016 mobile payments (mobile wallet, P2P, dedicated payment apps, etc) will overtake card payments in terms of net number of transactions.

There is not a universe in which I am going to agree that cards and cash will stick around indefinitely, because that is just crazy talk.


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