This past weekend I had a great conversation with a friend of mine about wine, politics, classic cars and payment technology. As the song goes, “these are a few of my favorite things.” My friend, Mick, is an auto mechanic based out of Monterey, CA who focuses primarily on British and other European import cars. When I say British, I mean early 1970 Mini Coopers before BMW started importing the more stylized versions with nifty customized paint jobs and stripes. He’s a British car enthusiast’s enthusiast…with the accent and Rolling Stones t-shirt to boot.
Mick is a savvy business guy and has A LOT to say about small business banking, lending, payments processing and taxation. After a few mimosas the conversation gets very lively as you can well imagine.
I learned that Mick currently uses the payment processing tools, software and equipment provided by his business bank, Rabobank. The bank makes it easy for his business to use their credit card processing machines through favorable card processing fees, equipment leasing options and bundled low interest loans and credit cards. Rabobank typically charges him 2 ½% – 3% on processing fees for Visa and MasterCard transactions only. The bank also has account managers available to help with any problems in the payments processed…and are constantly trying to cross sell him into other bank products.
Last month Mick started to explore alternative payment processing options out of frustration with the Rabo solution. Rabobank processes payments only in his shop using Rabo supplied machines. Unfortunately, his checking account does not receive the payment until 3-5 business days after the credit card transaction is made. These machines are a bit clunky and keep him tied to his shop which is a problem for he deals with many customers at other garages. The solution also does not connect to his inventory management solution so he has to track each sale separately on his supplier order forms.
A friend suggested that he look into Square. His eyes got wider as he described all the great features Square has to offer through a FREE downloadable app and simple card reader connected to his iPad. Yes, the wide eyes could have been due to the mimosas, but his excitement was palpable.
“Through Square I can now load and access all of my parts inventory and process orders from anywhere. I met a guy at a coffee shop last week and he ordered several Jaguar parts from me. I punched in the order on my iPad, ran his credit card and emailed him the receipt. I gave him the parts and it was done. Amazing.”
Mick was also excited about the 2.75% transaction fee, no equipment rentals and the ability to access Visa, Mastercard, Discover and AMEX. The excitement around the mix of credit cards surprised me. However, his clients are typically high-end car collectors. AMEX is this customer segment’s card of choice….which is a point of differentiation for Mick’s shop compared to others in the Monterey and Carmel area. Another benefit to Square is the ability to receive the payment deposit the next business day. For Mick, and for any small business owner, this is HUGE to support the cash flow of his business.
The missing link is for Square transactions to integrate with a QuickBooks account. Right now he has to export the Square transactions as a .csv file and then import into QuickBooks. “It’s a bloody pain in the ass,” he says. However, in time I’m sure Intuit will build out the API for easy automatic imports.
So how should Rabobank, and other small business lenders, feel about Mick’s Square epiphany? Clearly, the Square solution is a formidable threat to Rabo’s business banking division. Banks feed on a steady revenue stream from the services and relationships they support from their small business banking business. Banks need to pay close attention to how small business clients are responding to the Square solution and either adjust their payments business/product or consider a strategic partnership with this (and other) innovator.
Eric Dunstan 
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