As major financial institutions and heavyweights such as PayPal bet that applications are key to winning over consumers with mobile payments, Square is taking a different route to the top with an email-based approach.

Square has launched a consumer-facing person-to-person service called Square Cash that leverages an email address to let consumers send funds to friends and family and includes a mobile app component that simply sends an email. As the service grows, it is likely that the app will integrate with some of Square’s other services to create an end-to-end mobile payment offering for both consumers and merchants.

“Sending and receiving money through email is a great strategy to make adoption of Square and the app go viral,” said Tom Sather, senior director of email research at Return Path, New York.

“While the app only creates an email today, Square likely has bigger ideas on how to use the app in the future,” he said. “Not to mention this gives them broader exposure to things like Square Wallet and makes them more of a competitive option to PayPal or Google.”

Simplifying mobile payments
The number of person-to-person mobile payment options available to consumers is overwhelming, and Square Cash goes head-to-head with PayPal and branded apps from well-established financial institutions including Chase and Bank of America.

To differentiate itself, Square’s Square Cash does not require consumers to create a profile or account to use the service, which could be a significantly strong value proposition for consumers since the lack of authentication speeds up the transfer process.

Although not necessary to send funds, Square has developed an iPhone and Android app to make it easier for consumers to compose emails.

When a consumer opens the app, they are prompted to type in the dollar amount of the transfer that they want to make.

From there, the amount is placed into an email and consumers type in an email address. The payment is triggered by copying the email address [email protected] into the message.

The first time that a consumer makes a payment, they are directed to Square’s Web site to register their credit card for the service.

The percentage of emails opened via mobile devices continues to grow, and although Square still may be challenged in getting a consumer to download an app, the simplicity of the app gives Square a leg-up in educating consumers about how to send money via their mobile devices.

“We chose email because we wanted to provide a service that is accessable to anyone, anywhere they are,” said Katie Baynes, spokeswoman at Square, San Francisco.

“At this time, we’re focused on providing the best experience for our customers,” she said.

Payment roadblocks
At the same time, the lack of authentication is a security concern with email hacking.

To beat the privacy concerns, Square will need to authenticate email domains to block fraudulent emails, per Return Path’s Mr. Sather.

With the privacy concerns, Square is most likely to persuade consumers that are already familiar with the company’s offerings for merchants.

Square has also not announced any details about how the company plans to monetize Square Cash.

“Additionally, an app provides an environment that is controlled by the app developer, once lots of consumers begin to use it the app can be expanded and changed fairly easily in order to add additional services and take advantage of the attention that exists within the app,” said Rick Oglesby, senior analyst at Aite Group, Boston.

One of the most logical revenue streams for Square is integration within the company’s consumer-facing Square Wallet app that lets consumers find and pay for goods at local merchants remotely.

“I anticipate that Square will extend Square Cash person-to-person capabilities not only to their other products, but also allow it to be embedded within other applications,” said Brian Stein, managing director at Pervasive Path, Cleveland, OH.

“If you allow users to request payment from friends as part of the checkout process when purchasing concert or plane tickets, it allows Square Cash to become a ubiquitous method for transferring funds between individuals,” he said.

Final Take
Lauren  Johnson is associate reporter on Mobile Commerce Daily, New York