Square, Twitter inventor Jack Dorsey’s disruptive mobile payments service, just received a strategic investment from Visa, TechCrunch reports.
Last quarter Square did $66 million in payment volume and plans to triple that this quarter.
Square, which lets anyone take credit card payments with an iPhone or another mobile device via their small dongle, needs buy-in from the industry, which is highly regulated and has barriers to entry.
The company is also adding an exec from JP Morgan, which is Square’s US payments partner, as an advisor.
Visa will also be helpful in reaching small businesses, of which many have Visa accounts. More importantly for Visa, plenty more small businesses don’t take Visa and will, thanks to Square.
So it’s all to the good. But — and it’s a big but — it’s hard to believe that Square’s real goal isn’t to eventually displace the credit card companies. Silicon Valley has wanted to disrupt the credit card industry for decades. It’s cartel-like, and charges high prices to merchants and consumers alike.
The problem is that payments systems have network effects: they only become useful once everyone uses them, which creates a chicken and egg problem. Which is why many payments companies have faltered, and which is where Square’s genius comes in: by adding a dongle that makes it so everyone can use already existing payment methods, Square removes the chicken and egg problem. But the goal is still the same: at some point, when they have enough users, Square will enable payments directly from the app, without a dongle, and bingo! No more credit card needed!
At this point this is all speculation on our part, but it’s hard to believe that Square doesn’t have the ambition to do this.
If so, Square’s move here is genius: they’re taking money from Visa to disrupt Visa. Good luck to them.