Mobile-payment service Square has launched a new way to pay for products with its Square Wallet app: gift cards.
Here’s how it works: Any Square user can send someone a “gift card” for a store that’s personalized via Square’s mobile Wallet application.
Upon receiving the gift card, it’s added to a user’s Square Wallet. Or the recipient can opt for a digital QR code — a kind of special barcode — to pay for something like a cup of coffee at the participating store.
A major purpose behind the new gift cards component is to help users discover new stores, said Square CEO Jack Dorsey. “If I really like a place and I’m a good friend of yours, I can tell you, but if I give you a gift card you’re really going to try it out,” he said.
Square Wallet is a mobile application that essentially lets users pay for products at a store using Square without taking their wallet out. The app notifies registers that the shopper is in the store. Adding gift cards was an important way to continue to promote its growth through word-of-mouth, Dorsey said.
We caught up with Dorsey to find out the why gift cards are an important part of the equation for Square. Here’s an edited transcript of the interview:
WSJ: Let’s start with the what — gift cards?
Jack Dorsey: Square has always been about giving more local businesses and people with intent to start something an easy way to get started immediately. We started with the card reader, and built a full point-of-sale, a wallet, and the reason is because it’s traditionally been extremely difficult to even start accepting credit cards. My parents both were entrepreneurs, my dad started a pizza restaurant at 19, and both had to deal with all these issues in addition to accepting payments. Any payment device that comes over the counter, a merchant should be able to accept it, and they should be able to accept more and more options.
So we launched gift cards. You go to a local place and they’ll have hand-written gift certificates or are issuing plastic cards, which is extremely expensive. They usually get charged 10% to 15% to issue those cards, so we’re doing it the same as a credit card, 2.75%. Anyone can buy it from their phone, it literally takes less than 30 seconds to buy a gift and send it to a family member or friend. We think all of this just brings more commerce to the world, but it brings new options to merchants. Just even getting started is a nightmare. The same was true of credit cards — people were paying 3% to upwards of 8% to accept cards, and Square brought it down to 2.75%. Free reader, free software.
You personalize it with an envelope, a message. You can redeem it in the wallet, you can redeem it via Passbook or print out a QR code and show it to the merchant. It degrades gracefully to whatever device someone has.
WSJ: Why gift cards? How does that help your customers?
JD: The biggest problem merchants have is being remembered and being discovered, so it’s another tool for discovery. If I really like a place and I’m a good friend of yours, I can tell you, but if I give you a gift card you’re really going to try it out. There’s an experience there waiting for you. You don’t have to do much. It’s a tool for merchants to make sure they have more and more people they’re aware of. It also starts getting into a concept of more remote commerce. People from their couch can send these experiences, can send these gifts, and they don’t need to pick out different things. They can just go have their own experience.
WSJ: Is there an incentive for merchants to push this to their customers?
JD: It’s mainly around discovery. It’s been in our top five feature requests for merchants. In the past they’ve done gift certificates, they have all these different systems. This just makes it easy.
WSJ: It works with Starbucks SBUX -1.28% too, right?
JD: I just bought one this morning, there’s 7,000 places you can use this. Both teams have worked together, it’s some of the best collaboration we’ve seen. Without a hitch, the scale has been amazing, in three months.
Originally, Starbucks came to us and asked if they could sign up for Square. The other thing is, they’re one of the most innovative about payments and technology in retail. Also, they have great values and purpose, so it’s a very easy partnership. That made things move very quickly.
WSJ: How big is Square now?
JD: We have 450 employees now.
WSJ: How about expansion. Do you want to rely on word-of-mouth? Any plans to roll out a salesforce?
JD: We’ve been fortunate with the organic growth. We think that’ll continue. It’s not about building a good base, it’s about really connecting you to the wallet and adding things like gift cards and rewards that will link to the wallet. It’s that span on the other side of the counter that makes it magic. That’s what gets people to really invest more. If you’re just getting the point of sale, it doesn’t necessarily get you more customers, and that’s what merchants want. If you don’t have a new experience coming in, it doesn’t translate to massive growth we believe. It’s why we decided not to focus just on building a credit card terminal. We focused on doing the entire thing, that’s what moves the needle. It might take a little longer than people on the street, but that word-of-mouth spread from people that love it will be faster than any sales force.
WSJ: What about data — Square has a lot of it on the buyer and seller side. What are you doing with it?
JD: The merchant analytics is a big part of why people choose Square in the first place. There’s a rich dashboard that identifies the busiest hours and days. There’s an example of a company in St. Louis who realized tracking their hours with Square, that closing at 4 p.m. instead of 6 p.m. was cutting off 20% of their business. It’s really simple stuff merchants don’t have access to. That’s on the seller side, but you can imagine equally compelling data on the consumer side. Obviously you can imagine introductions. We have all that data, we just haven’t surfaced it.
WSJ: Any plans to use it? Sell it as an extra product to merchants?
JD: We’ve explored a lot of those models. I think there might be something there. We’ve definitely thought a lot about it.
WSJ: Square Wallet will recommend a lot of places to shop. Is that a curated experience?
JD: Right now, if you do the work to put up a really beautiful image, we’ll feature you. We’re looking to make sure they have this beautiful image and then edit it up. More and more we’ll bake in algorithms to do it automatically. We’ve thought a lot about the directory as well, introductions, and ways to drive people to certain locations.
WSJ: Back to gift cards — how did the conversation with Chase go?
JD: They love it. The banks generally love any model because all they care about at the end of the day is bank accounts and deposits. What’s really interesting for them is merchants using Chase for their banking services. Visa and MasterCard also MA +0.73% love it because people are using credit cards to buy these gift cards. They’re using their networks. There’s no ill will — the Visa and MasterCard gift cards are interesting — but we wanted to make something that’s really personal. We can buy a Visa gift card and use it at any merchant, but it’s more saying, “I just don’t know what to give you.” We wanted to be a lot more thoughtful and give merchants a tool to promote their business. A dedicated gift card is a way to do that.
The more anonymous it is, the more systematic it feels. This is a product where the experience really matters. We put a lot of extra work into the animations, into how the envelopes are received and open. We’re pretty proud of how it works.