It’s rare that any new product or service quickly and simply makes our financial lives a whole lot easier. It’s rarer still that the offering is free.
So behold the mystery of Square Cash. It allows people to email money to other individuals without knowing their own bank account number, or the other person’s. There is no need to set up a username and password with Square Cash. Instead, it relies on information that most people carry around constantly - their debit card number.
Square, which many people have encountered via the company’s tablet-based checkout systems at retailers or its hardware that allows anyone to accept credit and debit cards on a smartphone, pulled the curtain back on the cash service in October. I’ve been using it ever since, and sending money is no more than a 10-second process once you’ve spent a minute or two signing up. Even my 70-year-old mother, whose response to new technology sometimes resembles that of a cornered animal, now lets me use Square Cash when I owe her money.
Something this good probably can’t endure in its current form, and the catch here is that each transaction costs Square a bit of money even though it’s collecting no revenue. The cost comes from the fact that it’s pushing the payments over the debit card rails that Visa and MasterCard own, and a number of toll collectors get money along the way.
This sort of electronic movement of money is not new. Wire transfers have been around for a while, and people often forget that PayPal started as a way for people to email money to one another.
Square is not the only company offering person-to-person payments. PayPal still does, and Google and Amazon have relatively new offerings as well. Several big banks have formed their own shared network to allow account holders to zap money around; Capital One joined the consortium this week. Then there are newer companies like Dwolla, Venmo (now owned by PayPal), Ribbon and others conducting similar experiments.
But Square Cash and its send-from-any-email-address trick is so easy that it feels somehow illicit. So it’s worth a peek under the hood to try to gauge the odds of it continuing in its fee-free form.
If you haven’t tried Square Cash yet, here’s how you would start. You open a blank email message and fill out the “to” field. Then, you copy “Cashsquare.com.” Add the amount in the subject line and an optional note in the body of the message so the recipient remembers why you’re sending money. Then press Send. (The company also offers an app that begins composing an email for you.)
First-time senders will get an email prompting them to go to the company’s website and type in their Visa or MasterCard debit card number and expiration date. First-time recipients will get a similar note. Once that is set, Square pulls money from one debit card and credits it to the other. It promises that the money will land in one or two business days, but it sometimes happens faster.
If you want to send more than $250 in a week, Square will want a bit more information from you. There are two ways to go here. First, you can let the company look at your Facebook profile as a friend would and also hand over the last four digits of your Social Security number. Or you can give Square your full name, date of birth and those same four Social Security digits. Once you do that, you can send up to $2,500 each week. (The company doesn’t post anything to your Facebook account; it’s just a form of identity verification.)
What you need more than anything else when using Square Cash is faith. I’m sanguine about these things given the make-or-break stakes for a startup like Square. Still, not everyone agrees. You can’t use a credit card for Square Cash, only a debit card, which taps your checking account quickly and directly. That scares people who don’t want to be out hundreds of dollars for days at a time if anything goes wrong and their bank needs a few days to fix it.
“Debit cards are fantastic because they offer a real-time connection to your bank account,” said Dan Schatt, the former general manager of financial innovations at PayPal. “The flip side is that they offer a real-time connection into your bank account.”
Square Cash users do have the ability to flip a switch in their settings that turns on an authentication process. Once you do that, you have to type in the three-digit number on the back of your debit card each time you send money.
Fears over the service’s security could potentially be eased if Square decided to offer a blanket guarantee to push money into the checking account of any Square Cash user who ran into a temporary problem. I asked Brian Grassadonia, who runs the Cash service for Square, if he wanted to make such a promise. He responded that the company always strove to protect customers and would approach any problems on a case-by-case basis. So far, according to the company, there have been no thefts that it knows of using Square Cash.
When Square first told the world it was building the service, it said that senders would have to pay 50 cents for every transaction. Sometime in the several months before it started the Cash service, the company changed its mind. Grassadonia said the 50-cent charge was not a ruse to throw off competitors.
“It wasn’t part of any fake-out,” he said. “We didn’t want to make people think twice. If it’s easiest, faster and free, there’s no reason not to try it.”
Still, it raises the question of what each transaction costs the company. Grassadonia wouldn’t say. Schatt, whose book about electronic payments will come out in July, estimates that it’s about 35 cents per transaction.
How might Square try to make up this gap and start making money off this service? Ron Mazursky, who directs the debit advisory service for the consulting firm Mercator, expects some tighter constraints. Perhaps Square Cash will be free only for the first year. Or there will be limits on the number of transactions, or charges for higher amounts.
Right now, Square Cash works only in the United States, but plenty of people have problems moving money from one country to another. The service might be able to help them, and charge less for the privilege than banks or Western Union.
Then there are possibilities that may be more tantalizing to Square. It would, after all, like more and bigger retailers to use its tools in their stores.
“The only way to generate real revenue is to go up the food chain and say to retailers, ‘Look, if you implement our system, we’ll bring users to you,’” Schatt said.
With a pile of email addresses from Square Cash users, the company is just one step away from trying to entice us to download its mobile wallet application. Perhaps merchants would sweeten the pitch with discounts. They would be wise to do so if the reward were a bunch of new customers who used their debit cards in their Square accounts, instead of the credit cards that are more expensive for merchants.
Grassadonia did not deny that any of this was possible. He referred to “a million” possibilities, although he didn’t want to comment on any of them.
“You can feel assured that the product we’ve built today - a free product for two individuals to exchange money - we have no intention and no plans of charging for it,” he said.
Until plans change, that seems to be a signal that it’s safe for newbies to try it out. In a world where many people carry less cash but often owe one another money, sending it virtually and instantly helps keep our to-do lists a little shorter.