PayPal Here vs. Square Revisited

We’ve pitted PayPal Here against Square on this blog on several occasions before, but evidently there is still a lot more to be said on the subject. The New York Times’ David Pogue has done an excellent job comparing the two mobile payments services and I thought I should share his observations with you and make a couple of comments of my own in the process.

Before I get going, let me just remind you that PayPal Here is a relative latecomer to this particular mobile payments niche. The huge payment processor launched its app in March of this year, almost a year and a half after Square did so in October 2010. And by the time PayPal finally entered this market, Square had not only grown very big, but had also gathered huge momentum, which allowed it to actually speed up its growth rate in the month immediately following PayPal Here’s launch, increasing the aggregate volume of processed transactions by a quarter — from $4 billion to $5 billion on an annualized basis — in the process. So PayPal has a huge mountain to climb.

Enabling Everyone to Accept Credit Cards

Arguably, Square’s biggest innovation was not the technology developed by the start-up, which for the first time turned a mobile phone into a full-fledged point-of-sale (POS) terminal, but the fact that it was the first payment processor to allow regular consumers to accept credit cards for payment. Up until then, only businesses and non-profits could do that, through what is called a merchant account. Moreover, setting up a merchant account was, and still is, a tortuous process involving the filling out of long application forms and the submission of a number of additional documents, which can take weeks. Once Square showed up on the scene, everyone could start taking cards just as soon as they downloaded the app and got the card reader. And people began signing up in droves. Small wonder then that copycats soon began popping up all over the place.

But the copycats never managed to put as much as a dent into Square’s stellar growth rate, and for good reasons. To begin with, Square quickly proved to be reliable, secure and trustworthy. Unlike GoPayment, its biggest early competitor, Square offered a simple and straightforward pricing model, without any catches hidden in the fine print. Unsurprisingly, consumers appreciated it. However, Square’s biggest early advantage was to be found in its deep pockets. The company was well financed even at the very beginning, but then last year it raised $100 million more and earlier this year it was looking for additional $250 million. And the processor has been very busy spending most of the loot on advertisement of all kinds. No competitor could raise anything close to these numbers. And then PayPal entered the scene.

PayPal vs. Square

PayPal has all the money it could need to go toe to toe against Square and seems to have built a worthy competitor. While PayPal Here’s transaction process “takes more steps” than Square’s, as Pogue notes, its app “offers some choices Square’s doesn’t, and a couple of them are very cool.” What are these?

For example, if you don’t have the card reader with you, you can take a photo of the card; the software recognizes the digits quickly and smartly. (We can thank Card.io, the company who created that card-recognition software, for that feature; PayPal bought them this week.)

…

The PayPal app also lets you accept checks just by photographing them, front and back, the way some banks’ apps now do. At that point, the check is as good as deposited; you can actually tear up the check if you like.

PayPal’s other twist: When you sign up, one additional click gets you an optional MasterCard debit card. What’s attractive about this card is that your PayPal Here sales land in its account immediately; you can use it to withdraw cash from an A.T.M., or you can use it to buy stuff for you or your business. You get 1 percent cash back on credit purchases with this card.

Pogue’s verdict:

I’ll grudgingly hand it to PayPal: the card-photographing, check-scanning and debit-card features genuinely give this Square ripoff some improvements that offer real utility.

To these I would add two more PayPal Here advantages over Square:

• Payment funds are immediately available in your PayPal account, whereas with Square funding doesn’t take place until the transaction is deemed complete, which can take a couple of business days.
• PayPal Here provides live customer support, which has been conspicuous with its absence at Square.

So PayPal truly has a lot going for it.

The Takeaway

Square didn’t really have a worthy competitor until PayPal Here was launched. And I, for one, did like PayPal’s version better as soon as I first took a close look into it. Pogue says much the same, even as he admits to hating copycats. And yet, since Here went live, Square has been going stronger than ever. That doesn’t mean that PayPal may never catch up with its rival; it may well do so. But another distinct possibility is that Square has already won the mobile payments war, while everyone else is left to scramble for the leftovers. We don’t know yet, but we shall see.

Image credit: YouTube / Square.