Portable credit card machines used to be a slow and unreliable way for businesses to accept payments electronically. The disjointed process and clumsy technology left businesses owners embarrassed –and sometimes even out of cash—if the transaction didn’t register.
That was before Twitter founder Jack Dorsey scratched his chin, took notice of a gap in the marketplace and came up with Square.
San Francisco-based Square Inc. is a credit card processing company that provides businesses with a free platform to accept electronic payment through smartphones and tablets. A tiny, square credit card reader known as the Square Reader fits into the top of Apple or Android devices to process credit card transactions. The system not only allows businesses to accept payments but also to track inventory and monitor daily reports from basically anywhere.
But the system isn’t perfect. Businesses can’t use Square to process charges for purchases made on the Internet. Some customers are wary about a lack of customer service phone number to call in the event that something goes wrong. Square also is more expensive than some credit card processors.
Despite the shortcomings, Square has become hugely popular with businesses from the tiniest candle maker to traveling food trucks to international coffee shop chains such as Starbucks.
How does Square work?
When a business owner signs up for the service, Square mails out a Square Reader as well as the software needed to get started. There is no cost associated with signing up. Once the software is installed, the businesses are ready to accept credit card payments from anywhere.
“At the end of the day, the technology fades into the background and the customer leaves a restaurant or store saying, ‘That was a delicious sandwich. I just bought a great pair of jeans. I can't wait to come back and visit this business again,’” said Square spokeswoman Faryl Ury.
Roslyn Broder owns RedAvaDesigns, a small jewelry company based in Chicago. She attends craft fairs and markets several times a month to sell her merchandise. With Square, life is easier and she can sell more of her products, especially when people are carrying less cash than ever.
RedAvaDesigns was initially a cash-only business, but Broder quickly realized she was missing sales. She didn’t own a smartphone so she opted to start with a manual credit card impression machine, known as a knuckle buster. After working 12-hour days, Broder entered the credit card data by hand in order to receive payment. On more than one occasion, Broder nearly lost money because she punched in the wrong number or misplaced a receipt.
“It really was a lot of work. I would have to go home after a show and go online and input all of the information in order to process the transaction,” Broder said.
When she finally got sick of the old way of doing things, Broder got an Android and started using Square.
“I love using it. It’s great. It’s much easier to process transactions,” Broder said.
Broder is, however, concerned about being able to reach Square personnel in the event of a technical error. Currently, there isn’t a customer service number to call and she wonders how to reach someone if she ever has an issue. So far nothing has happened. And there is an email address for merchants to use if they ever run into difficulties.
In addition to accommodating an audience of card swipers, many business owners are drawn to Square’s simple platform that allows them to log into a dashboard to track sales activity.
The system keeps track of all transactions, providing valuable metrics as to which products are selling the most and the peak operation periods. Information includes day of the week, amount of money earned and the time of day where activity is highest or at its lowest.
Simon Tung, one of the founders of Macaron Parlour in New York City, started selling French macarons at the Hester Street Fair on the Lower East Side. It was a cash-only operation with a table and a tent for a storefront. Tung started using Square so he would no longer have to turn away customers without cash.
So when the Marcaron Parlour was ready to open a retail store, Tung and his business partners starting using Square’s analytics. Through the program Tung can track which flavors are his customer’s favorites. He can set up loyalty programs. He can arrange his staffing needs around peak hours. Ultimately, Square saves him time and money.
“It's really nice that Square makes it very easy to track where your money is coming and going,” Tung said.
Here to stay
Square seems to have the most significant impact on small businesses that were previously hit with big fees for accepting credit cards.
Jane Zia is one of them. She decided to get Square after participating in several craft and art shows and seeing other merchants using the service. Her company, Our Secret Garden, sells lotions and body scrubs at small markets and online through Etsy. One of the things she loves about Square is that its charges are consistent.
“The percentage they take from sales is very reasonable and the high fees that are associated with companies that facilitate credit card authorizations just aren't there,” Zia said. “You don't have to restrict purchases to a minimum dollar amount.”
With Square, businesses have the option of paying $275 per month for “unlimited swiping” or being charged 2.75 percent per transaction.
The current processing rate for Visa, MasterCard and Discover is 1.5 percent of the charged amount plus 10 cents per transaction. The rate can change at anytime and may vary depending on how the cards are used or who is processing the transaction.
Square users seem to be more concerned with avoiding unexpected fees than higher rates, placing a premium on transparent billing practices.
“For decades, credit card processing fees were complicated and businesses had no way to determine how much they would owe at the end of the month,” Ury said. “Square revolutionized the payment industry.”
As Square continues to gain traction, company executives are finding that the concept appeals to businesses of all sizes.
“We still have small vendors but have seen an increasing adaption through chains. And as businesses grow, Square makes it easy to transition,” Ury said.
Starbucks accepts Square at 7,000 participating retail locations. Square’s revenue increased to $3 million in 2012 from $1 million a year earlier. The company is processing more than $10 billion in payments on an annualized basis, which makes Square the equivalent of the 20th largest retailer in the United States.
Forrester senior analyst Denee Carrington sees promise in Square’s business model and value-added in the additional services provided through the software. “Square’s Register application also deliver[s] clear value to the merchant through embedded loyalty programs and back-end analytics, and merchants who don’t have either should find these features appealing.”
There is one glaring hole in Square’s platform.
It currently lacks an online processing tool that competes with PayPal. That means if Tung and the Marcaron Parlour wanted to accept online orders, they would not be able to use Square to process Internet payments and data from those transactions would be aggregated somewhere else.
“If Square made it easy to integrate our online payment system, I would absolutely use them,” Tung said. “I'd like to have one company handling all my payments.”
With shoppers increasingly making purchases on the Internet, it’s a significant drawback. It’s hard to believe that Square executives aren’t working on some sort of new infrastructure to complete the platform.
For now, their lips are sealed.