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 CBS – Copenhagen Business School 
Square Case 
Strategic and Tactical Tools for E-Business (B Course) 
(CBUSO1001U_E17) 
Author: 
Dustin Jaax 
Peter Licht 
Amir Bohnenkamp 
Julian Kienzle 
København, 28.11.2017 
Index 
1. Why did Square grow faster than competitors with different strategies in the mobile payments market? 4 
2. Which competitor or potential competitor – whether mentioned in the case or not – do you believe presents the greatest threat to Square, and why? 4 
Market classification 4 
Competitor and Threats 4 
3. How is Google Wallet’s approach different from Square’s? Discuss the pros and cons of Google’s approach. 5 
Google Wallet 5 
Differences 6 
Pros and Cons 6 
Pros 6 
Cons 7 
Discussion 7 
4. What role, if any, do you think wireless carriers will play in the evolution of the mobile payments processing space, and what risks or opportunities do you think that creates for Square? 8 
Direct Carrier Billing 8 
Direct Carrier Billing in emerging markets 8 
Mobile Carriers in developed markets 8 
Risks and opportunities for Square 9 
1. Why did Square grow faster than competitors with different strategies in the mobile payments market? 
Many people will likely attribute the success and growth of Square to the celebrity of the main guy behind it all – internet entrepreneur Jack Dorsey, the superstar co-founder of Twitter. Sure, it probably did not make Square a less attractive investment, but taking a deeper look into the business processes of Square reveals factors that may well have been the main drivers of growth. 
First of all, a need was identified. James McKelvey, a good friend of Jack’s and now the co-founder of Square, was extremely frustrated not being able to sell his high-end decorative glass faucets and home furnishings because people didn’t carry around thousands of dollars on them and because he was not able to accept credit cards without paying exorbitant fees. This need is what drove the creation of the little squared dongle device, that when plugged into a phone works as a credit card processor. 
The key factor for growth, however, and what truly disrupted the mobile payment market, was the fact that Square worked as a payment aggregator. Instead of having each merchant setting up merchant accounts with acquiring banks, all payments would go through Square’s own account. This hence fully eliminated the steep costs of entry and fees. Square decided to mask the complexity behind payment processing and spread out its costs using a pay-as-you-use model, ie. no monthly fees, no contracts, no service fees. Furthermore, they incentivized use by giving out the dongle for free. This resulted in a fast flow of users trying out the product. 
Now, with users trying out the product all that remains is upholding quality as promised. Square is generally very easy-to-use. The hardware is self-explanatory; apart from its use, its design is also important as the brand name “Square” is very much aligned with the elegant and minimal look of the dongle (think Apple). But, it is in the software the real magic lies. Square provides applications with beautiful interface that makes it easy for small business not only to see payment processes but also acquire business knowledge from its data through analytics and other forms of insights. 
The final factor for growth was the establishment of strategic partnerships with leaders within different industries such as Starbucks, Visa, and Apple. This created credibility for the firm, which is an all-important factor for a company working within the payment industry. It was the disruptive initialisation including the quickness of consumer acquirement combined with the strategic partnerships that provided better credibility that truly provided momentum for Square. 
In summation the following factors allowed for Squares rapid growth: Initial awareness on the back of 
Jack Dorsey, disruption within payment market using creative pay-to-use business model that initially was tailored to smaller businesses, elegant solution that incorporated both hardware and software seamlessly and strategic partnerships that drove distribution and credibility. However, as previously touched upon it was the aggregation of payments that was the true disruptive factor. Jack and James noticed that competing companies working within the payment space such as Google mostly worked on solutions that were aimed at innovating consumer payments through mobile wallets and other seamless payment solutions to enable payers to pay on the go and peer-to-peer. Their focus on disrupting the actual back-end infrastructure and hence coming up with a two-way market solution is what set them apart in an early stage. 
2. Which competitor or potential competitor – whether mentioned in the case or not – do you believe presents the greatest threat to Square, and why? 
Market classification 
Before identifying competitor or threats there should first be a classification of the markets Squares operates is. In order to do so it make sense to answer the two following questions: 
1) How is Square making money? 
2) Where is Square making money? 

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We can answer the first question by looking into Squares annual report for the year 2016 In total Square had 4 different types of revenue, which are transaction revenue, subscription and service-based revenue, Starbucks transaction revenue and hardware revenue, where the revenue generated by transaction fees accounted for the largest share with over 80%. 
Furthermore, by looking into the different geographical markets Square is operating in, we can answer the second question. In general it makes sense to distinguish between a “Home market” and “Future markets”. In the “Home markets” Square is already settled and plays its part in the market. This markets mainly contain of the USA, Canada, Japan and Australia. However, in the “Future markets” the opposite applies and Square either just recently went into the market or still is not operating there. We mainly count the UK and Scandinavian markets into this. 
Competitor and Threats 
Based on the two question we can now identify a main threat/competitor for each market type, the “Home market ” and “Future markets”. 
In terms of the “Home market”, with the existence of PayPal Here, there is clearly one big other player threatening Square. PayPal Here is a part of PayPal Inc and has a very similar business model as Square. Both provider offers a service which is easy to sign-up, have free basis models with no fixed monthly fees and support very much the same technologies (NFC, ApplePay, Visa, MasterCard, …). Therefore, to see the difference between the two provider it comes down to minor details like small differences in transaction fee pricing. The biggest threat triggered by PayPal Here is certainly triggered by the whole Ecosystem behind PayPal. As PayPal Here is just a small part of PayPal Inc., it is easily imaginable that PayPal Here has more opportunities techwise. Furthermore PayPal Inc plays a big role in several other Payment markets such as the online-payment market or peer-to-peer payment market. Again, it is easy to imagine that there is a lot of potential to merge these markets and include the system of PayPal Here in it. 
In terms of the “Future markets” there are mainly two competitors to mention. Whereas PayPal Here operates also in the UK, the bigger threat here comes from a company called iZettle, which operates not just in the UK, but also rules the scandinavian markets. 
Again, iZettle also offers a service which very similar to Square as it is easy to sign-up, including free basis models with no fixed monthly fees and supports very much the same technologies (NFC, ApplePay, Visa, MasterCard, …). So it is minor details differences as well making the difference between the two provider. The biggest threat triggered by iZettle comes by the fact, that the company is basically an exact copy of Square, just operating in other markets. But as Square wants to enter this markets there will probably be a fight of two more or less same providers, whereas iZettle has the better starting position because they rule the markets already. 
As in both market types the suppliers are very similar it will probably come down to minor details in the hardware and software. Additionally it is imaginable that some on-top-services just like Square Capital or Square Cash could play a role in who is gonna succeed and who is not. 
3. How is Google Wallet’s approach different from Square’s? Discuss the pros and cons of Google’s approach. 
Google Wallet 
Launched in 2011, Google Wallet was a possible competitor to Square. Google Wallet was an Android mobile application that uses PayPass, MasterCard’s NFC technology. After downloading and installing the app to their NFC-enabled Smartphone, users were able to add their credit or debit card 
and link them to a virtual MasterCard account. Working as an intermediary, Google Wallet issued any transaction initiated by the user to MasterCard which then charged the owner of the linked debit or credit card. 
This app allowed for merchants to claim and receive payments, similar to Square’s business model. As of today (November 2017), Google Wallet does no longer support such operations but pivoted towards a peer-to-peer payment system: Google Wallet users are now able to send and receive money within the app. 
Differences 
In the following, I will describe differences with respect to the current version of Google Wallet. The main difference between Google Wallet and Square is their target users. Square’s target audience are merchants and to some extend large corporations, e.g. Starbucks and Burberry. Google Wallet, on the other hand, focuses on non-commercial end-users and peer-to-peer transactions. Consequently, their business model differ significantly. Google Wallet does not charge any fees on transactions to send or receive money and solely make money with the processing of user’s data. Square does charge a fee on transactions. Also, Google Wallet does not offer any Hardware, as does Square with their Point-of-Sale products, most prominently their free-of-charge card readers for smartphones and tablets. With Google Wallet it is no longer possible to pay via PayPass terminal, as it is possible with the Square’s /Pay with Square/ feature. Among others, this feature shifted from Google Wallet to Android Pay, the built-in payment system to Android smartphones. 
Pros and Cons 
Pros 
? It was possible to only wave the smartphone over a PayPass terminal to pay. This feature is longer supported within Google Pay but is now available at Android Pay. 
? Entering a PIN-code for every transaction added an extra layer of security. This feature is now optional. 
? Google Wallet does not charge any fees for sending or receiving money. 
? Google Wallet wanted to enhance value of their customer experience by offering special discounts and targeted advertisements. This feature is longer supported within Google Pay but is now available at Android Pay 

? Before June 2016, it was possible to issue a physical debit card with which users could pay in retail stores and elsewhere. 
? Google Wallet facilitates sending money via email or phone without requiring the receiver to have the Google Wallet app installed. The recipient needs to have a Google account and a debit or credit card 
? Google Wallet Fraud Protection covers 100% of verified unauthorized Google Wallet transactions in the US. 
? The waiving of NFC technology enables iOS users to use the app which expands the potential market significantly. 

Cons 
? The possibility to pay via PayPass technology required an NFC-enabled Smartphone. This excluded all iOS users which made up a large part of the market. This feature is longer supported within Google Pay but is now available at Android Pay. 
? Entering a PIN code for every transaction, might suppress user experience. 
? Google’s announcement to make selling user data their main monetary driver might put privacy in jeopardy. 
? Targeted advertisement might annoy users. 
? As of 2013, the app has only been downloaded 10 million times. 
? It is only possible to receive commercial payments if users are doing business as a sole proprietorship. Merchants can’t use Google Wallet to collect payments if they are a registered corporation or nonprofit. 
? Google Wallet is only available in the US and the UK. Payments between those countries is prohibited. 
? The pivot to Peer-to-Peer transactions shifted their business into an already developed market with strong competitors such as PayPal and Venmo. 

Discussion 
As the low download numbers and their pivot to a peer-to-peer payment system suggest, their initial business model which was more similar to Square’s did not succeed in the beginning. Consequently, many features from Google Wallet were incorporated into Android Pay which is the default payment 
solution on Android smartphones. Their now substantially different business models – Square offering a arguably cheap solution for merchants to accept credit cards and Google with Google Wallet and Android Pay focusing more on the payment of the consumers side – these two companies are hardly directly comparable anymore. 
4. What role, if any, do you think wireless carriers will play in the evolution of the mobile payments processing space, and what risks or opportunities do you think that creates for Square? 
Direct Carrier Billing 
One instrument for mobile carriers to expand into the mobile payment processing market is to promote direct carrier billing. Direct carrier billing is a mechanism that allows customers to buy content that is directly charged to their mobile phone bill. The advantages of direct carrier billing are that mobile carriers already have already a billing relationship with their customers and that customers do not need a bank account for that kind of mobile payment. 
Direct Carrier Billing in emerging markets 
This model is in particular interesting in emerging markets and less developed countries, since over 2 billion people are still unbanked there. Furthermore, mobile carriers can benefit here from lower regulatory burdens. Smart, a philippines based mobile carrier, as well as Bango, a nigerian based mobile carrier, have already shown in the past the enormous market potential of mobile carriers in less developed countries. Hence, these are the markets where mobile carriers can keep and expand their role in the mobile payment processing space and leverage their direct contact to customers. 
Mobile Carriers in developed markets 
In contrast, mobile carriers are facing a high competition in developed markets, where mobile payments processing has almost become a commodity due to the huge presence of tech companies such as PayPal, Venmo, Apple and Google. Besides that, regulatory burdens are quite high in developed countries. In order to provide payment services in Germany, mobile carrier Telekom for instance needs a banking license. Furthermore, joint ventures Softcard (formerly Isis), which has been established among AT, T-Mobile and Verizon in 2010 and was discontinued in 2015, has shown that mobile carriers are having a hard time to gain a significant market share in the mobile payment processing space in developed markets. Tech-wise it must be questioned, whether mobile carriers can really contribute something to most recent tech trends in mobile payment processing around cryptocurrencies and fraud prevention. Therefore, it might be a also a good approach for mobile 
carriers to invest in companies or to build partnerships with companies, which are already solving the recent challenges in the mobile payment processing space. 
Risks and opportunities for Square 
Given that mobile carriers continue expanding into emerging markets, the transaction volume will continue to increase. This bears a huge market opportunity for Square as the company monetizes mainly through its commission fee. Therefore, Square could consider to expand its business into these markets by selling its POS hardware and software there to merchants. But by doing this Square would also take some risks. First, Square does not have the same knowledge of emerging markets as of developed markets. Second, Square’s products, such as its business-in-a-box may be too pricy for those markets. Finally, Square’s product would need to be compatible with direct operator billing. In conclusion, mobile carriers do not affect Square’s business directly, but would rather play an important role, if Square decided to expand into emerging markets. Apart from that, mobile carriers are far away from building POS software or hardware and hence not able to affect Square’s business in neither a good or bad way. 

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