With a Faster Square Cash, Square Ties Fee-Based P2P to the Faster Payments Trend

By John Stewart
@DTPaymentNews

For years, payments providers have struggled to make money on person-to-person payments, and now Square Inc. is taking a swing at the problem. Starting now, Square is offering to make instant transfers of Square Cash funds into users’ bank accounts if they pony up a 1% fee, according to Recode, an online tech publication.

“We are in the process of rolling out our Instant Deposit feature to Square Cash customers,” a Square spokesperson confirms. Ordinarily, the service credits funds the next day, and without a fee.

The San Francisco-based company has also introduced Visa-branded virtual payment cards backed by Square Cash accounts, the spokesperson says, allowing users to tap their accounts to make payments to merchants online and in-app. Square is planning to make the cards work with Apple Pay and Android Pay, according to Recode, which would allow Square Cash users to pay at checkout counters equipped with near-field communication readers.

Other P2P services have turned to merchant payments as an avenue toward generating revenue in a market where consumers have been unwilling to pay fees. PayPal Holdings Inc.’s popular Venmo service, for example, this year introduced Pay With Venmo, which allows users to pay merchants. Venmo is free to users, but PayPal plans to collect transaction fees from sellers. Square already offers a so-called business account for Square Cash, which lets merchants request payments at Square’s standard 2.75% rate.

Square is mum about how many users its 3-year-old Square Cash service has, but it clearly sees a chance to cash in on the demand among some users, at least, to get faster access to their money. It has already attacked that issue with its Instant Deposit program, which allows merchants to have proceeds from Square transactions credited to their bank accounts immediately instead of next business day. Again, the fee for instant access is 1%.

With Square Cash, both the sender and the receiver of the funds must have a debit card. This allows Square to work through a process known as the original credit transactions (OCT). With an OCT, a processor like Square acts like a merchant reversing a transaction through the bank card networks, but instead of flowing to the sender, the credit from the reversal goes to the receiver’s account.

A relatively obscure process, the OCT has been widely adopted recently by banks and tech companies to offer relatively fast card-to-card payments between individuals.

But while speeding up P2P payments may align with a general trend toward faster payments, observers have their doubts about consumers’ readiness to pay a fee for immediate access to funds. “The only folks who might pay any fee for real-time payment are small businesses that need immediate access to funds and consumers who are paying bills to keep services from getting cut off in real-time,” says Steve Mott, principal at Stamford, Conn.-based consultancy BetterBuyDesign, in an email message.

The virtual cards now connected to the Square Cash service may offer some value, Mott says, though the proposition is far from unique to Square. “The virtual cards are simply prepaid open-loop ways to pay online,” he notes. “Consumers [and] small businesses could get those from NetSpend or Green Dot or Incomm, but Square appears to be offering its own. For Square merchants, the risk of these cards is tiny.”

Still, interchange revenue from the cards, coupled with fees from consumers for instant deposit, could add up. “Because Square already has a significant base of business, these small tweaks can accumulate to significant revenue streams,” notes Rick Oglesby, who follows Square as principal at AZPayments Group, a Mesa, Ariz.-based consultancy.