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Report: Square building local recommendation engine based on payment data

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Square is building a recommendation engine that suggests nearby places to visit based on the consumer's mobile transaction history, The Verge reports.

"We can tell you that people who like X might also like Y--and it's a true representation of what you've bought," said Square Director of Discovery Ajit Varma. While other apps and services recommend places to eat, drink and shop based on check-ins and other social media interactions, Varma contends that payment data is a more accurate representation of consumer preferences, in part because its Wallet application records transaction information automatically, without the buyer or seller taking any extra steps.

"There's so much powerful data that comes from each and every transaction, particularly now that those transactions are happening increasingly using a mobile device," Kamran Ansari, an investor at Greycroft Partners, told The Verge, noting that mobile payments record information about the customer's location, the time of day, the purchase total and the frequency of customer visits to a particular location. Ansari said that taken together, those details can successfully predict where else a consumer might like to shop.

Square already offers Square Directory, an online site that recommends local merchants that accept its mobile payment services. All retailer and restaurant partners are given a free landing page where they may upload contact information, photos and related content, like items for sale or deals for first-time visitors. Data collected from Square payments determines how high each business rises in the directory search results. "It's a single place you can go as a customer and get all this information," Varma said. "And over time, we definitely want to make it more personalized as well."

Square now processes $10 billion in annual mobile payment transactions. More than 2 million U.S. businesses and individuals use the firm's services, including its signature Card Reader, which enables user to swipe credit and debit cards through a dongle plugged into Apple (NASDAQ:AAPL) iOS and Google (NASDAQ:GOOG) Android smartphones and tablets. While Square initially targeted small businesses and vendors without access to conventional credit card processing hardware, the startup is aggressively moving into traditional brick-and-mortar retail, highlighted by a nationwide payment partnership with coffeehouse chain Starbucks. Last week, Square poached Alex Petrov from rival PayPal as its new vice president of partnerships, a move to increase the number of merchants supporting Square services.

Square will nevertheless face considerable obstacles in its efforts to become a leading source of recommendations. For starters, its suggestions are limited to Square partners, still a small subset of the overall merchant segment--in addition, privacy restrictions will preclude the company from telling users where their friends shop and what they purchase there.

Some investors question whether payment information is an effective solution to local discovery. "All you know is I went there and I spent some money there," Scott Raney, an investor at Redpoint Ventures, told The Verge. "That's literally all you know. You can already get all that through the social layer, plus a lot more--context, reviews. I may have gone there, but you have no idea whether I liked it or not."

For more:
- read this Verge article

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