Square and the missed PayPal opportunity

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Square just announced a new app, Card Case, to make payment easier to merchants that you know. Essentially, you keep records of your cards with Square, and then pay participating merchants by sending them payment through your mobile. The merchant, of course, does not have nor need to have a copy of your card. That sounds suspiciously like another "killer app" that was going to "change the world of finance" before being acquired, to wit, PayPal.

PayPal was brilliant. You did not need to trust everyone with your card and payment info, just one trusted merchant.

The way credit cards (and debit cards, to a lesser degree) work, is that you give the merchant enough info that they can claim permission to "pull" a certain amount from your account, whether your bank account (for debit) or credit account (credit cards). The big weakness is that anyone with sufficient information - and you do give that information to a lot of merchants - can impersonate you and take the withdrawals. Protection policies and law in most countries limit your liability, but somewhere down the line you are paying for it, in the stress of worrying about credit theft and in the increased prices that merchants must charge you to cover their increased merchant fees.

A better answer, of course, is for you to have a very few trusted parties, and to "push" funds to merchants when you desire. As a matter of fact, in an anonymous and diffuse market like the Internet, and especially individual seller to individual buyer, such a payment system is a requirement. To some extent, PayPal implemented this model. You trust PayPal, not the merchants, and push funds to whomever you wish.

Then, PayPal was bought by eBay, the dominant but lumbering auction site. In his captivating book, the PayPal Wars, Eric Jackson writes how surprised the PayPal-ers were by the slow movement of eBay on just about everything, once they got into the company.

The mobile payments market should have been PayPal's to own. They got people and merchants, at least online, to accept the business model of purchasers pushing payment and low risk to both parties. The transition to mobile for bricks-and-mortar merchants should have been theirs. Yet, they squandered it, and opened a door for Jack Dorsey's Square.