Square Slapped With Cease And Desist By Illinois State Department Of Financial Regulation
Mobile payments company Square appears to have just received a cease and desist order from the Illinois Department of Financial & Professional Regulation. You can access the document here.
Context & Ripple Effects
Square’s expansion case had been built around retail distribution and payments-industry backing, including an anticipated retail boost through Apple and Visa’s strategic investment. Its 2012 Starbucks processing partnership and small-business pricing option raised the stakes for keeping its payment service available and compliant across markets.
The Illinois order introduces a regulatory constraint into that growth path. It also reverses the posture Square took in 2012, when it sought a cease-and-desist order against mobile-payments rival mPowa over its product imagery.
First-order effects
- Square must respond to the Illinois Department of Financial & Professional Regulation’s cease-and-desist order and address whatever activity the order identifies.
- Illinois merchants using the affected Square service face disruption or uncertainty while Square resolves the regulator’s action.
Second-order effects
- Square’s partners, including Starbucks, gain a reason to scrutinize the state-by-state regulatory treatment of payment processing tied to their arrangements.
- Mobile-payments rivals can point merchants toward services whose regulatory standing appears less uncertain in Illinois.
Third-order effects
- If state actions become a recurring constraint, mobile-payment providers will need to treat licensing and regulatory operations as part of market expansion rather than a back-office task.
- The episode points to a payments market in which distribution partnerships and venture backing do not remove state-level oversight of financial services.
The trend: Mobile-payments startups are scaling through major distribution partners while encountering the fragmented state regulation that governs payment activity.