Square continues to broaden its offerings as it looks to create a mobile commerce powerhouse with a new initiative that lets users of the Square Wallet mobile payments application purchase, send and store digital gift cards.

San Francisco-based Square got its start enabling smaller retailers to accept credit card payments via an attachment for mobile devices. Having quickly built the merchant side of its business, more recently the company has been adding other services, including a mobile payments app and partnering with Starbucks to bring mobile payments to its numerous locations.  

“Square’s business model is disruptive,” said Gary Schwartz, author of “The Impulse Economy” and “Fast Shopper, Slow Store.” “If Mr. Dorsey can shake the trees in the prepaid world, he can expand his business significantly.

“Prepaid gift cards are valuable for Square for two key reasons,” he said. “One is growth – a digital gift card is viral and thus expands Square’s influence horizontally.

“Secondly, is margin – Square plans to disrupt the incumbent gift card issuing fees with a low 2.75 percent charge. Given there is no high bank interchange on prepaid, Square can reap a healthy margin.”

Passbook integration
The news means mobile users can now send a friend a gift card from Square Wallet, which can be downloaded for free in the Apple App Store or Google Play.

Using the app, users can search for nearby businesses or anywhere in the United States, choose a business, click to buy a gift card and enter the recipient’s email address. Users can also send a personalized note and choose a personalized envelope before they send.

Recipients of a Square gift card can save the gift card to Square Wallet or print out a QR code. 

Recipients can also save Square gift cards to Apple’s new Passbook app, which is designed to give users a way to store all of their gift cards, coupons and other merchant content in one location.

User experience key
The success of the gift card strategy may be dependent on Square being able to sign up additional big name merchants such as Starbucks, which began accepting payments via Square Wallet this fall.

“Square will have a hard time finding another commerce partner like Starbucks,” Mr. Schwartz said.

“As I like to say you can successfully sell an addictive substance – coffee – on every street corner in America – it is harder for other retailers,” he said. “With a close-loop gift card you need partners with scale.

“Key to adoption on the small screen will be the user experience – especially with a viral gift product.  As Jack Dorsey says, ‘This is a product where the experience really matters.’”

For businesses, Square gift cards are easily added to the business tools provided with Square Register – the mobile app that is a companion piece to Square’s mobile point-of-sale systems. Accepting Square gift cards for merchants is similar to taking a Square Wallet payment. 

Currently, users can pay with Square Wallet at over 200,000 businesses in the U.S.

“Historically, offering gift cards has been complicated and cumbersome for businesses said Katie Baynes, corporate communications manager at Square.

“Square gift cards require no extra work or cost and are fun to send and easy to use,” she said. “Our goal is always to simplify processes for businesses and their customers.

“We think Square gift cards are a great, easy way to send personalized gifts year round.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York