Square is an innovative company that offers a simple credit card reader that's a big draw to small businesses. But with the recent demise of its Square Wallet app, many people are wondering if the company has what it takes to stay afloat until it finds a new moneymaking opportunity to support its credit card reader innovation.
Before Square, small businesses used to have a tough time setting up credit card payments. But now, you can just plug a small, easy-to-use reader into your phone and accept payments anywhere for a low transaction cost. This is Square's biggest draw. You can request the card reader for free online, download the accompanying software, and you're ready to go. Whenever a card's swiped, the customer gets a receipt by email or text.
Unfortunately, the simple product doesn't give Square big profits. According to Forbes, Square gets 2.75% of every credit card purchase, but the majority of that money goes to pay the credit card processor, such as Visa. Square has a tiny margin from which to operate its entire business, which is why it needs a bigger, more profitable hit to support the credit card reader side of its business.
On May 12, word spread quickly that Square was discontinuing its Square Wallet app from both Apple and Android stores. Prior to this announcement, Square Wallet was the company's biggest hope for turning a profit. The app was supposed to let people pay for purchases with their phone and not have to carry a wallet, cash, or credit cards. But it didn't work out. One of the problems is that it never expanded beyond a limited number of restaurants and stores.
A broader failure
But don't hold this failure against Square. The Wallet app idea is a tough nut to crack. Even Google, despite all its resources, is having trouble getting its Wallet app to take off. And PayPal's digital wallet is still very limited also. The infrastructure for creating a wallet app that catches on and turns a profit is difficult to build.
So Square needs to find an innovative idea that can quickly become profitable. Its latest attempt still uses its Wallet application in the background. Called Square Order, this app offers people a chance to order restaurant food from their phone and skip waiting in line. Sure, you could look the restaurant up online and call in yourself or use the restaurant's online ordering system, if it has one. And then you could pay online or in person when you picked up the food. But if a new app provides a path of less resistance to ordering food, streamlining the process so you can pay for your meal within the app itself, some will likely jump in. But for such an app to work, it needs widespread adoption. If you know that the chances are high that the restaurant you want to order from is working with the app, you'll go to the app first. Or if the app's user experience is so unique and beneficial that it's worth checking into, you might give it a try.
Does Square Order offer this? It might down the line as it gathers more restaurants and coffee shops. But it has competition. PayPal is already trying the same thing, but it's only working with a few places so far, too.
Square Order is available for both iPhone and Android (in beta). Right now, it's servicing San Francisco and New York, according to Tech Crunch. Its interface is pleasant to use, featuring large photos and an attractive design. If you're ordering coffee, you can be as detailed as you want, down to choosing between whole or skim milk. If the restaurant accepts tips, Square will automatically add the tip for you (though you can modify it). The app has potential for growing a customer base.
So, even though it's having trouble and is in an iffy situation right now, don't give up on Square just yet. The restaurant business will see $683.4 billion in sales in 2014, according to the National Restaurant Association. Focusing on this industry is a good bet for Square. It might still see the success it needs to keep its innovative credit card reader up and running.
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