Square's Big Plans for Mobile Won't Rescue Square Wallet

Square is "betting big on Near Field Communication," but not to the point the company would consider bringing back its own Square Wallet app, CEO Jack Dorsey says.

Square Wallet was one of the company's several failed attempts at developing its own mobile wallet for consumers. The spread of NFC has been an enabler for consumer-facing wallets such as Apple Pay and Android Pay, but Square isn't planning to join that party.

Instead, the San Francisco-based company is focused on its mobile point of sale platform, especially its standalone EMV and NFC reader. With this strategy, it expects to gain as much brand recognition as Apple and Google by being the device consumers see every time they pay a Square merchant with their handset's built-in mobile wallet.

"We think there is another opportunity, not just with chip cards and EMV, but actually paying with your phone," Dorsey said March 9 during Square's 2015 fourth-quarter earnings conference call, its first as a publicly traded company. "The biggest shift in NFC is around an education that this works and it is going to work every time, and it is super fast."

But Square hasn't given up on the consumer market entirely. Its sole consumer-facing product, Square Cash, is meant to fill a void that Apple Pay and Android Pay don't address: Person-to-person payments. Google split off its P-to-P functions for its separate Google Wallet app, and Apple hasn't released a P-to-P technology at all.

"We really love what Apple and Google and Samsung are doing with the wallet … [but] we have a different sort of utility around Square Cash, and we have a much stronger technology now in Square Cash," Dorsey said in response to an analyst's question during the call. 

Square's merchant product also has brand recognition among consumers, and Dorsey described it as a complement to the Apple and Android mobile wallets.

The core payments business for Square had a strong quarter, fueling revenue and sales results that bettered industry predictions for a company that observers have often felt embraced a business model lacking revenue punch. A case in point was always the money-losing deal Square finally dropped with Starbucks last year.

Part of that fourth-quarter momentum came from the popularity of Square's EMV and contactless reader that it has sold on the Square website and in Apple stores, Dorsey said. The company received more than 350,000 pre-orders for the $49 reader at the end of the fourth quarter, and expects to sell the product on Amazon and in Staples, Best Buy and Target stores this spring.

"We have been working for seven years to get to the point where when someone sees the Square logo plugged into a phone, they will know they don't have to go to an ATM or write a check or find cash because they could actually use a credit card," Dorsey said.

Square has heard complaints from merchants that the EMV chip card process is slow, so the company invested in the fastest chip card hardware that it possibly could fit in its reader, Dorsey said.

Square's in-house hardware team and recent acquisitions have allowed the company to continue to develop EMV and NFC technology and "move super fast and stay super focused … on our execution around this hardware," Dorsey said. "We just don't see that with our competitors," he added

However, while the faster EMV chip card acceptance is important to Square merchants, the process is not faster than allowing a customer to pay with a mobile wallet on a phone.

"Apple Pay, Android Pay and Samsung Pay are even faster," Dorsey said. "This matters to merchants because the more people they can move through the checkout line, the more sales they get."

Because of the speed of the transaction with mobile wallets, especially with Square's arrangement with Apple Pay in which no customer signature is required, the company sees no pressing need to reintroduce its own wallet again. Square Wallet disappeared from app stores in May of 2014. The app has, over the course of its history, been called Card Case and Pay with Square; after it was removed, Square Wallet was replaced with a product called Square Order, which was also short-lived.

Rather than build yet another mobile wallet, Dorsey said the company will focus more on advancing Square Cash, which recently introduced Cash Drawer as a business management tool for storing and monitoring funds related to the business.

"The main utility for cash is around the peer-to-peer payment," Dorsey said. "Square Cash goes back to our core differentiator of providing simplicity, and we are playing a very long game here."

Square has its focus in the right place for a "long game" simply by not getting swallowed up in a race for consumer-facing products, said Gil Luria, analyst with Los Angeles-based Wedbush Securities

"It makes sense for Square to focus on the merchant side, with PayPal, Apple, Google, Samsung and many others solving the wallet problem," Luria said.

Dorsey makes a good point about Square having a chance to be even more associated with mobile payments even without putting its brand on a consumer wallet, Luria said.

"With the new EMV/NFC reader, they can keep that brand of being associated with mobile payments in the forefront as people use Apple Pay and others to pay," Luria added.

The popularity of the Square reader continues to fuel merchant exposure to other Square products such as Square Cash and Square Capital, both of which saw solid gains in the fourth quarter of last year. Square Capital provided $400 million through more than 70,000 cash advances in 2015, with $150 million of that in the fourth quarter.

Square also cited Instant Deposit as a popular new feature in which the company can send funds from a sale immediately to a seller's bank account. From its launch in August of 2015 to the end of the year, more than 58,000 sellers completed nearly 600,000 instant deposits.

Approximately 100,000 sellers have used Square Invoices, a digital service to collect online payments, to process their payments, the company said.

Caviar, the company's restaurant delivery service, expanded into 17 markets and grew at a rate of 4.5 times greater than the previous year.