The Meaning of Square: What's So Great About a Cashless Society?

By Derek Thompson

The larger significance of Starbucks partnering with the mobile payments software company Square is bigger than faster lines for coffee. But what is it, exactly?

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One small step for vanilla lattes, one giant leap for mankind, is how the world characterized the deal yesterday between Starbucks and Square, the new mobile payment company that, in addition to the iconic square swiper shown above, can identify people and their financial information as they approach a register, match the merchant with the customer's face and payment info and allow transactions to happen without cash, credit, or even arms:

"That's $5."
"I'm Derek Thompson."
"Thanks, you're all set."

... and I'm out the door with my drink.

This is what a cashless society looks like. And it is cool. But, like, how cool really?

Let's count some of the ways it is important: for merchants and for customers. For merchants, point-of-sale technology is awful, outdated, and expensive. Credit cards are a hassle, cash and coins are cumbersome, and payment software can be buggy and complicated. Square is simple. It not only de-kluges the process of ringing somebody up, but also it humanizes the interaction by making the point of contact all about two people's faces rather than a credit card and a swiper. That's nice.

For customers, Square eliminates friction. This is either very good or very dangerous, and maybe both. Paying for stuff shouldn't be such a chore. Some merchants take one credit card, but not another, or they require a $10 minimum payment, or they only take cash, and they've run out of certain bills. These are first world problems, to be sure, but we are living in a world of first world problems and solving them in an elegant way is no small feat. By divorcing paying from any sort of mindful action, frictionless transactions make us forget about money. That's good news if you think customers should spend more money. It's bad news if you think most American families aren't thinking mindfully about money enough, already.

These are innovations of convenience, mostly, but they arguably build a gateway to bigger things: for data, for advertising, and for, yes, society. The data created with millions of digitized interactions could provide deeper records of what people are buying and how much they're paying for it -- the sort of information that would be important to corporate research departments or macro-economists. And the GPS capabilities lend themselves easily to targeted advertising. Wired paints a picture of the future:

You're walking down the street. It's hot. The Starbucks a block away sends you a message that your favorite hot-weather order - venti skinny latte on ice -- is available to you at a dollar off. You accept the offer, and with a few taps, add an almond biscotti to the tab. Then you stroll into the Starbucks. Everything is ready when you arrive - you simply pick it up, the barista checks out your punim, and you're out the door.

When I read the first batch of stories about Square, my reaction was, "This sounds pretty fun. But is it revolutionary? Are we so lazy and pressed for time that disrupting the action of taking out your credit card is a gosh-wow innovative leap?"

I think the answer is two-fold: (1) Innovations that save time, even just a little bit of time, are real innovations, because in any advanced economy time and attention are currency and creating more of them can make us all richer; (2) What's important about Square isn't just the transactions it makes more efficient but also the cashless world it pulls closer to the present. As Slate investigated in a fabulous series, a cashless society can make us richer, healthier (dollar bills are dirty!), and smarter. Three big takeaways from their special report:

1) A cashless economy can make us richer: "One 2003 study estimated that moving from a wholly paper-based network to a completely electronic one could save an economy 1 percent of its annual GDP (a $150 billion sum for the United States)."

2) Hard cash can't talk to us, but virtual cash can -- and it can make us better spenders. You could link a cashless account to a service like Mint that notified you when you went over your monthly self-appointed allowance.

3) ... but it also might increase crime, since software can be hacked and cash will be pushed into the black market: "Financial crime would increase in a cashless society, since it's easier to move electronic currency fast. Paper bills can be unwieldy ... And we shouldn't forget about the hackers who would be delighted by a world in which all financial dealings took place online."

The upshot is that, although it's hard to feel overwhelmingly excited about the prospect that we can slightly speed up the line at Starbucks with more cashless transactions, the deal struck yesterday is bigger news for the nation's most exciting mobile payments start-up, and it brings us closer to a cashless economy whose benefits and risks we're only beginning to see and guess.


This article available online at:

http://www.theatlantic.com/business/archive/2012/08/the-meaning-of-square-whats-so-great-about-a-cashless-society/260935/