This year, three U.S. mobile payments companies have released consumer “debit cards,” a tacit admission of how behind the industry is on mobile payments — and a smart marketing ploy that extends payment providers’ own brands.
In May Square revealed the Square Cash Card, which links to users’ Square Cash app accounts and lets them use the funds they hold there, but doesn’t link to their bank accounts. The following month, Apple introduced Apple Pay Cash, its card that people can use to make Apple Pay purchases online or in physical stores with the funds they receive through Apple’s new money-transfer service. That month Venmo said it was also testing a debit card, which became available last week. The money users spend is debited from their Venmo balance.
It’s ironic, and the offerings sound complex (consumers really just want quick and painless transactions). For the immediate business, this is just a way to extend their initial, virtual value propositions and give customers more flexibility in how they use their apps. But it’s also an acknowledgement that mobile payments are still a pretty futuristic concept for consumers, and an opportunity to challenge how those consumers think about financial services.
“The play is: how does a consumer think about who they bank with?” said Mike Landau, payments research lead at PwC. “I would say the bank where I have my account, where my money sits. When you challenge the idea of where your money should sit so it’s most convenient for consumers — the thesis here is that that answer can evolve based on habit.”
Square Cash, Apple Pay and Venmo currently all have a peer-to-peer payments solution that come back to a bank account for each transaction.
“At a certain point the service becomes habitual to consumers to the point that they really start to move money from that funded account and it makes more sense to run their financial lives out of a digital service as opposed to a traditional bank,” Landau said.
In just the month after Square Cash launched its card it shipped as many units as it did in the first eight months of the original Square Reader, CEO Jack Dorsey and CFO Sarah Friar wrote in their second quarter shareholder letter this year. In the second quarter, more than a third of active Square Cash customers conducted fee-based transactions, which they identify as including Cash Card, credit card, Instant Deposit and Square Cash for Business transactions. The company has not disclosed its number of active users, a spokesman said.
The shift is similar to PayPal’s experience five years ago, Mike Moeser, Javelin Strategy’s payments director, recalled. At the time, PayPal began issuing plastic cards as part of an effort to get merchant customers to adopt POS devices and thereby extend their initial e-commerce offering into brick-and-mortar stores. Today still, despite the digital overhaul across industries, a physical store presence is still a huge priority for companies trying to capture transactions, he said.
“The reason e-commerce oriented companies such as Square, Venmo and Apple are issuing plastic is the reality that only 10 percent of total retail sales reside in the e-commerce,” Moeser said. “The remaining 90 percent of purchases are still made at physical stores. While e-commerce takes 50 to 75 basis points of share every year, it’s not fast enough for some of these e-commerce players.”
PayPal found success with just a handful of merchants. Its cards didn’t have a Visa or Mastercard logo, which meant they had to adopt another network to accept the cards. Most retailers weren’t willing.
To drive hyper-growth in purchase volume, companies have two options, Moeser said: fight with their competitors for customer transactions, or bring their digital offerings into the physical world and bring the functionality of point-of-sale retail to digital wallets.
“What’s different this time around is that folks like Venmo,” which is owned by PayPal, “are using traditional card networks such as Visa to extend their wallets into the physical world,” he said. “This means the $20 someone sends you by Venmo for a dinner can be used at a later time in a physical store – you don’t need to go to their website.
