Instant Deposit Could Be a Hit With Sellers, But How Long Before Copycats Arrive?

By John Stewart

A new service from Square Inc. that accelerates merchants’ access to their funds in return for a 1% fee is likely to gain popularity among the small sellers that primarily use Square for transaction processing, according to some observers. That may hand Square a key advantage in the acquiring market, but some question how long it will hold on to that edge.

The service, called Instant Deposit, was announced Thursday and represents the 6-year-old company’s latest gambit to bolt revenue-generating services onto its basic but commodity-like processing platform.

These efforts have met with mixed results. Square Capital, which offers cash advances to client merchants based on their Square volume, and Square Cash, the company’s peer-to-peer payments system, appear to be gaining traction. But the company’s attempts to offer a digital wallet for consumer use have floundered.

Instant Deposit is likely to meet a pressing merchant need for faster funds availability, says Adil Moussa, principal at Omaha-based Adil Consulting LLC, which focuses on merchant acquiring.

“Reducing wait time can be very interesting to some merchants that want their money immediately, and most people are into immediacy, so I expect a fair number of merchants to jump on this and pay the 1%,” Moussa tells Digital Transactions News by email.

“Immediacy” appears to have a literal interpretation at Square. The company, which earlier introduced next-day funds availability for merchants, says in a press release that availability with Instant Deposit will arrive “literally seconds after a sale.” That should appeal to merchants facing obligations to buy inventory or pay vendors, Square’s release says. The company did not respond to inquiries from Digital Transactions News.

In a beta test, Instant Deposit, which is part of the Square mobile app and is now available to all Square merchants, attracted “thousands” of merchants that deposited more than $10 million into their accounts, according to Square.

Each deposit must exceed a $50 minimum and fall below a $2,500 maximum, and the business owner must have a U.S.-issued debit card linked to his bank account. The card allows Square to make the accelerated deposits. “All you need to do is link your debit card—most U.S. debit cards are supported—and voilà, your sales can be deposited right after you ring them up,” says Square’s release, though it adds access to the money is “subject to your bank’s availability schedule.”

In this way, Instant Deposit appears to resemble Square Cash, which requires both senders and recipients to have a debit card. Acting as a merchant, Square performs a reversal on the sender’s transaction but credits the funds to the receiver’s bank account.

Time will tell whether the 1% fee is worth it to merchants looking to speed up funds availability. Clearly, though, there is demand. Moussa says he predicted a processor would offer this service but “I didn’t expect it to come so soon and from Square,” he adds.

But while the service may be appealing to merchants, the advantage it offers Square may prove fleeting. “This is what I call an incremental innovation, as opposed to a substantial innovation,” Moussa notes. “Which means that it will give Square a little advantage over its competitors, but the competitors will start offering it as well because it is easy to duplicate.”

Independent sales organizations are a natural to offer something like Instant Deposit, Moussa says. “When traditional ISOs and acquirers figure out the underwriting risk, they will be able to put substantial money at the disposal of larger merchants that really need their money immediately,” he observes.