Lessons from the death of Square Wallet

Square killed its Wallet offering this week despite the fact that Wired’s Marcus Wohlsen, among others, thought it had everything going for it. The move was just the latest indication that the mobile payments market has yet to arrive, and ReadWrite‘s Dan Rowinski went so far as to opine that mobile wallets are simply doomed. But I think Square’s mobile payments offering had a few fatal flaws:

  • A lack of merchant support. Square Wallet was launched three years ago, but it failed to gain any substantial traction among a broad swath of retailers. As Wohlsen noted, a small fraction of businesses accepted Square Wallet in San Francisco’s South of Market neighborhood, which is “the epicenter of the city’s startup scene.” And while Square’s partnership with Starbucks certainly seemed promising, the ubiquitous coffee vendor never fully supported the Wallet app.
  • Little or no added value. Starbucks’ mobile payments app has thrived primarily because of it integrates the company’s rewards program, eliminating the need for users to dig through their wallets or purses to find their loyalty card. Like so many other mobile wallet apps, though, Square didn’t provide enough of an incentive for retailers or consumers to eschew credit cards or cash at the point of sale.
  • Starting from zero. Square’s mobile credit card reader has gained great traction among vendors, but the company remains entirely unknown to many (or even most) U.S. consumers. That’s a huge disadvantage compared to PayPal, for instance, which boasts 143 million active accounts but continues to struggle in mobile.

The mobile wallet market still faces huge challenges, of course: Margins remain razor-thin (where they exist at all), multiple competing systems and technologies continue to slow adoption among merchants and consumers, and we have yet to see the emergence of complex business models that will add enough value to the transaction to change decades of consumer behavior. And things are likely to get more complex in the coming months if high-profile companies like Apple and Amazon decide to join the field of mobile proximity payments.

But those business models will evolve and partnerships will be built to enable marketers to deliver things like mobile coupons and aggregated loyalty programs that will gradually find an audience among consumers. The mobile wallet has a very long way to go, and I don’t expect to see drastic increases in usage over the next year or two. But it’s far from doomed.