Payment provider Square scraps gift card service

SAN FRANCISCO Thu Jun 27, 2013 5:56pm EDT

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SAN FRANCISCO (Reuters) - Payment start-up Square Inc scrapped its gift card service less than a year after it launched the effort.

"Square gift cards were a fun way to send gifts from local businesses to anyone over the holiday season," a Square spokesman said on Thursday. "They are no longer available for purchase."

Square, which competes against eBay Inc's (EBAY.O) PayPal division, launched the service in December, offering gift cards useable at businesses that accepted the company's Square Wallet mobile payment application.

Square, headed by Twitter co-founder Jack Dorsey, makes a credit card reader that slots into smartphones and helps small merchants accept plastic more easily. The company has expanded into other areas of mobile payments, with mixed success.

The gift card service "wasn't a very well thought-out experience," said Rocky Agrawal, payment and commerce analyst at reDesign Mobile. Agrawal said he tested the gift cards at several merchants and at least half of the businesses did not know how to redeem them.

Square may also have had trouble dealing with different state laws covering gift cards. In California, if a consumer has a balance of less than $10 on a gift card, merchants are required to refund that value in cash, according to Agrawal.

"Merchants didn't know anything about that when I asked them," he said.

Square is a close strategic partner of Starbucks Corp (SBUX.O), which has also invested in the start-up.

Agrawal said that when he tried to get refunds on Square gift cards at Starbucks shops in California, staff knew about the rules but had no way to give him cash for the value on the cards.

(Reporting by Alistair Barr; Editing by Leslie Adler)

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