Is Square Cash A Real Threat to De-Throne PayPal for Micro-Business Transactions?
By Rich McIver
Back when the competition was slim, PayPal was the hottest and yet most frustrating tool around for peer-to-peer and micro-business online payments. Although PayPal paved the way for most Americans, in particular solo entrepreneurs, to conduct their first online transactions, the service raised the ire of many. Between enduring numerous hacking and fraud issues since 2001 and withholding funds and suspending accounts seemingly arbitrarily since 2003, the market was ripe for a well-funded competitor to challenge PayPal in the peer-to-peer online payments space.
Enter Square – the company with the ubiquitous little white card swiper – which has now begun aggressively marketing its Square Cash option, a way to pay friends, family, and merchants (and get paid) with cash. Like PayPal, it’s simple to use: Just download the app, load your Visa or MasterCard debit card information, select whether or not you’ll use this app for personal or business reasons, choose a $Cashtag (a name that identifies you on Square Cash) and you’re ready to send and receive money.
Outside ease of use and that $Cashtag, what other benefits does Square Cash offer over PayPal?
- Cost per Transaction: Many entrepreneurs first attraction to PayPal was their pricing model, and Square Cash has adopted a similar model and is roughly on par with PayPal in terms of pricing. With PayPal, the individual sender’s cost is $0 when sending PayPal to PayPal transactions inside the U.S. On credit transactions, the sender pays 2.9% + $.30 per transaction if the recipient doesn’t want to pay that cost (it’s negotiable). While Square Cash may change in the future, at the moment they’re accepting only debit cards (both sender and recipient), and the cost to send or receive is $0 within the U.S. For Cash Pro accounts (business), the transaction is a mere 1.5% fee for the bank-to-bank cash transfer. Credit card transactions with Square must go through the card reader or at the online store (business only), and the rate is 2.75% across the board for swiped transactions.
- Frictionless Payments: The reduction in online or mobile transaction friction was the primary advantage of PayPal over its predecessors, and it’s here where Square has the greatest advantage over PayPal. Square Cash can be completed entirely over email, and the process is easy – you never have to go to a website. Just draft an email to send or request cash via the app and complete the transaction in the app via email. PayPal? It still requires the user to log into their PayPal account, and go through the steps or use the PayPal mobile phone options (there are three) . Here’s the kicker – PayPal requires a PayPal membership to receive money, whereas Square simply requires a debit card from a recipient to transfer funds from bank to bank.
- Payment & Receiving Limits: When it comes to the liquidity of the two platforms, again, Square Cash has a slight advantage. The issue here is that PayPal limits withdrawals from PayPal accounts to $500 per month unless you verify your account. The withdrawals, mind you, are coming from your PayPal account and not your bank. Similarly, albeit with higher limits, Square Cash limits initial receiving to $1,000 per 30-day period without account verification.
PayPal is still the early mover in the peer-to-peer payments space, which is where so many entrepreneurs get their start. And that early mover status has given it a lasting advantage, as it has 5 times the consumer usage rates of its nearest rival. That head start shouldn’t be discounted. However, in Square Cash, PayPal finds a well-funded and innovative competitor who has a number of product advantages. And with PayPal set to split from eBay later this year Square Cash has a significant opportunity to significantly disrupt the mobile peer-to-peer payments space and potentially dethrone PayPal.