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 behavioral 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.