Square Revisits an Old Idea in Gift Card Relaunch

Square, which made a short-lived attempt at digital gift cards in late 2012, is debuting a new gift card service today with a heavy emphasis on an older payment instrument: plastic.

Square, which is under pressure to diversify as mobile card readers become commonplace, has frequently redesigned and reimagined its products to adapt to market demands. For example, its Square Wallet app became the basis for Square Order, and its Business in a Box bundle was discontinued to make way for an a la carte offering.

Square's new approach to gift cards is already paying off, said Johnny Brackett, a company spokesman. The payments company received more than 250,000 gift card preorders in less than three weeks, even though the product was not publicly released until Nov. 18, he said.

"It may seem counter-intuitive for a mobile payments company to offer an actual gift card, though physical gift cards are still a big deal for merchants," Brackett said in an interview.

Other digital and mobile payment companies, such as PayPal and First Data's Clover, have digital gift card offerings. PayPal has gone so far as to call plastic gift cards "outdated," but Square sees clear demand among its merchant clients. "The [plastic card] product is really resonating with a group of merchants that may otherwise not offer gift cards," Brackett said.

Square charges $1.50 per plastic card purchased through Square Register, the company's tablet-based point of sale system. Merchants can order the cards through the dashboard on Square Register, and receive the cards in about a week if they use one of Square's premade designs. Square also offers customized designs, which take about three weeks to deliver.

Square does not charge subscription, activation or redemption fees. The cards carry the merchant's brand, except for a small Square logo on the back of the plastic. There's no separate charge for the design service.

Square's earlier digital gift card offering required recipients to use the Square Wallet app, which the company discontinued in May 2014 on the same day it launched its order-ahead app. Square also reportedly tested a plastic payment card that it would directly issue, but it canceled the project by August.

With the plastic cards Square launched today, the company hopes the pricing and lack of ancillary charges will lure a high number of small merchants. The payments company is also linking gift cards directly to the Register app to make it easier for merchants to begin a gift card program.

"Usually merchants have to go through an unrelated third party to offer gift cards, and there are more fees for that," Brackett said.

The new plastic gift cards are the latest of Square's moves to broaden merchant relationships and offset the commoditization of mobile card readers.

"The integration of reloadable gift cards with Register is a smart move by Square," said Denee Carrington, a senior analyst at Forrester Research, adding consumers' use of gift cards has grown consistently year over year and will continue to do so. "Merchants like gift cards as a way to drive engagement and Square has now made it possible for small and medium-sized businesses to easily create or order their own branded cards, something that until now has been out of reach for most."

Merchants also get a financial upside from the gift cards, which makes them attractive, Carrington said.

"Merchants get their funds in full up-front regardless of when purchases are actually made, and a card is an incentive for consumers to go back and shop more with that merchant," Carrington said. "I expect that soon we'll see Square add merchant loyalty to their suite of services and will enable merchants to link loyalty with their reloadable gift cards."