On Tuesday morning Xero announced to the ASX that its US operations had signed an agreement with Square, which would allow transaction data from its payments devices to be integrated with Xero accounting systems. Xero MD Chris Ridd said no formal deal was yet in place for an Australian partnership, but that Xero would look to extend the US deal locally when Square sets up Australian operations.
The partnership between the companies would mean small business owners that used Square’s mobile payments technology would be saved from the time-consuming task of manually inputting sales data into their Xero accounting software.
Square is perhaps the highest profile of a new breed of payments providers, disrupting the established players, by offering businesses new options based on smartphones and tablets. Square, for example has achieved big success in the US with a free credit card reader, which business owners can attach to iPhones, iPads and Android devices, allowing them to accept credit card payments. It also sells stands that turn iPads into point of sale systems.
Shared global plans
In late January The Australian Financial Review revealed that plans were underway for Square to launch in Australia, and Mr Ridd said it would make sense for the two companies to work together locally.
“One of the reasons that Square is interested in Xero is the global context of what we are building,” Mr Ridd said.
“There is no firm dates or announcements, but certainly the intention is that Square has global aspirations, as does Xero, so the alignment is very good.”
The deal between Square and Xero is not exclusive, meaning Xero could strike similar partnerships to integrate its software with other mobile payments products.
The payments sector is becoming increasingly competetive as smartphone technology evolves rapidly. Last Thursday Australian payments products provider Cuscal unveiled a trial program on a smartphone app, which can make any new Android smartphone replace a Visa card.
The deal with Square also ramps up the competition between Xero and its biggest competitor MYOB. MYOB has launched its own mobile payments devices, known as PayDirect, which is based on technology from local Square rival Mint Wireless.
In March, MYOB chief executive Tim Reed said that offering customers the opportunity to integrate its payment system with their MYOB accounting software would be a “killer combination” in inspiring small business to take up mobile payments solutions.
Competing with MYOB
Mr Ridd said Xero intended to follow a different path to MYOB in the mobile payments space, and believed that MYOB was limiting itself by competing as a payments player in its own right.
“There are lots of payments providers in the market. We had a look at the Mint Wireless opportunity and we understand MYOB’s direction there, but it is not a strategy we would undertake,” Mr Ridd said.
“We think that the business to consumer payments market is well and truly covered by a range of providers, and our plan is to leverage the innovation that is coming out of that, rather than competing with it.
“We wouldn’t want to white label another technology as Xero, that would restrict us from working with a number of other player, which is exactly what MYOB has done. We are taking a different approach, which I think is much more open.”
Mr Reed however disputed the idea that MYOB’s PayDirect was limiting its options, and said it would also partner with Square if it launched in Australia. He said PayDirect offered more than was covered in Xero’s deal with Square and that MYOB was continuously looking to expand the number of relationships it had with new financial services players.
“What Xero has done with Square is quite different to what we have done with PayDirect. They are effectively allowing Square customers to take a set of transactions and put them into their accounting software, which is what we already do with all of the financial institutions and major credit card providers in Australia,” Mr Reed said.
“We integrate with over 120 financial institutions today, and we would look to do it with Square and others as they enter the Australian market.”
Mr Reed said that while the Xero deal with Square would allow customers to speed up the back end processes, it PayDirect offering was also focused on front end processes like creating on the spot invoices with payments.
He said MYOB would take a similar approach to Square as US provider Intuit, which has a similar payments option to PayDirect, which competes with Square and intergrates with its QuickBooks software. Intuit also has an agreement that lets Square customers process payments straight into its software.
“We will openly look to partner with new payments providers to do that same back end facilitation, but we also want to make sure the upfront part of the process is seamless and integrated and accelerates the cashflow cycle for customers,” Mr Reed said.
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