Saturday, April 30, 2011

Analysis on why Visa Made an Investment in Square

Visa (Goliath) Not Investing in David (Square) but Goliath (Twitter)

Yesterday's announcement that Visa made a strategic investment in Square took many in the payment industry by surprise...especially Verifone,  as this news 
squarely provides Verifone with a Black Eye and not the Pea kind.  

In prepared statements, Square’s Jack Dorsey, said: “We’re thrilled to partner with Visa. This relationship will accelerate our vision of empowering businesses and aspiring entrepreneurs to succeed. The best way to grow your business is to accept credit cards. Together, we can ensure that all businesses of any size can pursue the American Dream.”

Verifone's Insecurity "Around" Square
Gained Momentum with Visa announcement

So Why would Goliath invest in David asks Forbes? Good question.

Here's my opinion:

Square has been targeted by Verifone as "less than secure."  (see Verifone Ad on right) Therefore, by getting the backing of Visa, Square not only provides Square with "instant credibility" but, at the same time, strikes back at Verifone.  Let's say that Verifone's Insecurity "AROUND SQUARE" just gained momentum...albeit in reverse.

Shout out to Verifone:  If it makes you feel any better, I've got a feeling, that Visa isn't as interested in Square as they are in Twitter's 200 million base. Here's why:

After spending a couple hours last night wondering why on earth Visa would invest in Square…(If Goliath was going to invest in David why not a David with a PCI Certified personal POS)...I think I got it figured out.  

It’s because David isn’t really David afterall, David is Goliath. (Square is Jack Dorsey and Jack Dorsey is (again) Twitter)  
It’s all about P2P (person to person money movement) and this is Visa making a brilliant P2P investment/move.  Let's look at some recent developments:
1.  Jack Dorsey recently rejoined Twitter and therefore, Dorsey is playing a dual role at Square (CEO) and Twitter, where he has returned to lead product development.  Let's just say that paving the road for a real time T2T (twitter to twitter) payment platform is a helluva good start.  Think of it.  Need to pay the babysitter?  Twitt-her.   Owe someone $15 bucks for a burger and a beer?  Twitt-him.   Want to donate $10 to Tokyo, Haiti, Tuscaloosa, etc.?  Twitt-it.
2.  Visa recently announced it was partnering with Fiserv (Zashpay) and CashEdge to enable people to send money from any Visa card or a bank account to another person's credit or debit card  (Visa cards only, naturally). In the case of owing your buddy $15 for a burger and a beer, send $15 from your debit card to his debit card.  (Visa cards only)
 3. Twitter has a 200 million (and growing) base which paves the way for Visa to provide a key competitive advantage over MasterCard in the much ballyhooed P2P market.  Believe me, MasterCard recognizes the potential value of P2P. as this press release from MasterCard on 4/27 demonstrates.  MasterCard Names Marcie Verdin Group Head, Global Person-to-Person Payments  

So, my simple analysis is that Visa is investing in Square in order to introduce P2P payments and “Skim” from Twitter’s 200 million base.  At the same time, they shut out MasterCard. (Visa cards only) It's a brilliant move by all parties...Visa, Square AND Twitter.  Especially in light of the fact that former Google CEO, Eric Schmidt recently invested in a small company called Twitpay which is trying to carve a niche in the charitable donations/payments arena.

At the end of the day, Jack Dorsey's strategic partnership with Visa was indeed a brilliant move, but without Twitter, it's a move that never would have happened in a billion years. (Then again, a billion years passed before someone came up with Twitter and Jack Dorsey not only did, but will probably earn at least a dollar or $5 for every one of those passing years.)  

Prediction:  Visa and Twitter will make a killing off the P2P/T2T business. I don't know what they'd call it. (I kinda like Twit$) and when Twitter and Visa introduce "Twit$" Powered by Visa,  Square AND Twitter will make a piece of every transaction.  And it won't stop there.  The possibilities are endless.   In closing, I'd like to point out that if this wasn't the idea behind the Visa/Square strategic relationship, then I'm wrong.  :)  

If you have any comments or thoughts on this analysis, please feel free to email them to:

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