Tuesday, November 23, 2010

The Square That Killed Goliath

Photo from Tech|Startups.

It was February 2009 and glass blower Jim McKelvey had just turned down a customer interested in buying his glass art creation because his business did not support a credit card payment scheme. (Read more of his story here or just continue reading this post because everything shall be explained in due time anyway.) God knows how hard and oftentimes frustrating it is to independently peddle wares nowadays, more so when you pit an up-and-coming entrepreneur against those big chain stores tricked out with the latest in credit card processing technology. Plus the problem with selling something as ephemeral as art, the sale of which depending on the whims and personal taste (or lack of it) of its buyers, is that it is unlikely for an artist-entrepreneur to have potential customers passing through with a backpacks pre-loaded with ready cash in the event of impulse splurges. Sure, it could happen. But it doesn't, more often than not.

So Jim McKelvey, like so many independent businesspeople the world over, was faced with a problem that didn't seem to have a readily-available solution. Now, what to DO exactly? Well if it were me, much as I hate to admit it, I'd probably shrug my shoulders and feel like a total loser and/or lower my prices to accommodate my customer. ("No cash on hand? Pay when able!") This is, obviously, a TERRIBLE business model. But since it's Jim McKelvey (and NOT me), he called up his friend Jack Dorsey, who just happens to be the whizkid co-founder of the social networking behemoth Twitter, and plans were made to solve the problem of lost opportunities in the current payment ecosystem dominated by giants Visa, MasterCard and PayPal.

And this is how Square, which ranks at #10 in Time Magazine's Best Inventions of 2010, was born.

Square, simply put, is a device that comes with an application that allows anyone to accept payment cards using their mobile phone. For more information check out Square Up's features guide and development blog. Om Malik of Gigaom explains how it works:
It's essentially a magnetic reader that plugs into the headphone jack of an iPhone. When a credit card (or a debit card) is swiped through the reader, it reads the data and converts it into an audio signal. The microphone picks up the audio, sends it through the processors and then is routed to Square’s software application on the iPhone. From there the encrypted data is transmitted using either Wi-Fi (for iPod touch) or a 3G Internet connection to back-end severs, which in turn communicate with the payment networks to complete the transactions.
Now another important question: Is it available in the Philippines? Unfortunately, the answer is NO. Square Up says that the Square device currently accepts card payments only within the 50 US States. While the company claims that they "haven't completely eliminated the idea of supporting an international market but at this time [they] cannot support non-US entities. There is no specific timeline for [their] international rollout." See this response and more at the company's FAQ section here.

Okay, so now some of you may be thinking: Now what?! What's the point in getting us all hyped over new technology we have to wait aaages for before it trickles down to our tiny island nation? (In short: Maabutan pa ba yan ng mga apo ko?) Well, the sad news is that Filipino SMEs probably have a lot of waiting to do and, in the meantime, will just have to go about the business of eking out a living using traditional payment models. But the goods news is that change is in the air. It's coming. We just have to wait it out.

Also note that the verb I used is "wait" and not "pirate."


Z said...
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Z said...

If it's over here, we don't need Square. Due to work far from home, both intranational and international, even LBC has its own Bank now to process "padala."

Relative to this, our two biggest TelCos have ATM-via-celphone services provided you set-up the account. It's like setting up a PayPal account through an online credit card provided by a Philippine Bank. Here, you just use the celphone dealership as a bank. You fill up your account there, and you can pay by depositing or by cash transfer via celphone with an additional P10 transaction fee. I'm not sure but you might be able to access G-Cash through BPI since both are within the Ayala umbrella. In any case, given that even garbage collectors have decent celphones here, it shouldn't be a problem. Checking the account balance is real-time, too.

The only problem with this system is it's separate from your regular ATM account, unless I am right that there's a way to link the BPI ATM to G-Cash. The problem is that at present it will only be easy when shopping online, either from retailers or buyng used gear from hobby-specific forums (audiophile equipment, photog, etc.) Strolling along and just spotting something isn't likely to be as accessible, however. I mean, who'd keep around 10k in his celphone ATM account, right? Not like you can withdraw that easily when you need to get home, unless the cab driver has SMART Money.