From cash to credit to cellphones

Last year the Lab spent some time researching the future of credit card payment systems. Our findings convinced us that peer to peer payments and alternative payment platforms would eventually reign. While sites like PayPal and eBay had paved the way, we wanted more flexibility and ease in making purchases. For example, a few months back I filled out the online form for PayPal, but I still haven’t verified the bank account PayPal made a two cent deposit into several days after I signed up (to confirm the account for security reasons). Consumers want the exchange of dollars to be safe, but they also want it to be instant and easy. Really, really easy. That’s why we were excited about the then secret platform code-named “Squirrel” from Twitter co-founder, Jack Dorsey.

Now, Squirrel has been unveiled as Square. As the company tells it, the platform came out of a real need that was not being met: “In February 2009, Jim McKelvey wasn’t able to sell a piece of his glass art because he couldn’t accept a credit card as payment. Even though a majority of payments has moved to plastic cards, accepting payments from cards is still difficult, requiring long applications, expensive hardware, and an overly complex experience. Square was born a few days later right next to the old San Francisco US Mint.”

A New York Times article published this week examines the various payment systems that are emerging, from PayPal’s mobile app to Intuit’s GoPayment. For independent freelancers, handymen, artists, street performers, and small shop owners advances in mobile, integrated on-site payments will truly revolutionize the nature of small businesses. But it’s more than just a nice way for the bohemian masses to manage payments. A Portio Research study forecasts mobile payments will grow from$69 billion in 2009 to$633 billion in 2014.  And another study from Javelin Strategy & Research anticipates that by 2013, credit card purchases online will be down nearly 20% opening up the way for alternative payments.

Retailers must invest in increasingly flexible, easy payment platforms to enable the widest possible audience to spend their money when, how, and where they want. Then, they must expand this innovation to other areas of their business. Square and payment platforms like it should be a model for deal finding, coupons, virtual purchases, loyalty programs, CRM,and more we haven’t thought of yet.

When you add Square functionality to the natural ease of use of the iPad (the application was released first for the iPad, iPhone and iPod Touch is coming shortly) you have a completely 21st century shopping experience. It’s graceful, elegant, fast, and easy. And that’s what shoppers want.