Square – Charge Anywhere!

December 29, 2010 by  
Filed under Blog

Square Charge Anywhere!

My Square reader on my iPhone

Merchant services take note! Jack Dorsey, one of the guys who thought up Twitter, has come up with a cool new way to take credit and debit cards anywhere there’s phone coverage.  Square is a tiny swiping device (about the size of a sugar cube) that plugs into the headphone jack of your iPhone, iPad, iPod Touch or Android phone.

It’s super easy to sign up for. Download the free Square app, enter your name, address, email, SSN, and the bank account number you want the transactions to go to, attach a photo, and that’s it. This is in startling contrast to the application process for a traditional merchant service, which can rival getting a security clearance for the Pentagon in time-consuming complexity.  Then they send you the little reader in the mail, for free!

Lots of other things are free, too. No equipment charges, no setup fee, no gateway fee, no monthly fee, just 15 cents per transaction, and 2.75% for card present, and 3.5% for card not present. The keyed-in transaction option is only for if the swiper doesn’t work Square is designed to be used for transactions between people in real life meatspace. This pricing structure makes it affordable for occasional use. You don’t pay anything for having the service available only when you actually run a transaction.

This opens up all kinds of possibilities for casual card use at garage sales, charity fundraisers, school book sales, and Tupperware parties (is that too old-fashioned? Romance parties then ; ). But the real game-changer is going to be the way it makes taking plastic affordable for freelancers, contractors, street food vendors and coffee stands, artists who sell at festivals, musicians who sell CDs at concerts, farmers’ market vendors and all those independent small businesses who can’t afford a traditional merchant account.

So how is Square making money on this? What’s their business model? Jack Dorsey has come up with an elegantly simple way to prequalify users without the traditional credit check. They do an immediate check of your social media history.  From Bruce Upbin’s blog on Forbes.com:

When merchants apply for credit, Square looks at their social footprint: Facebook fans, friends and wall activity, Twitter followers and retweets, blog activity, Yelp reviews and photos on Flickr and Google Street View. Getting 100 Twitter followers is not a trivial exercise,€ says Square COO Keith Rabois, You must exist to do that.€ Square tested its method this summer on 50,000 merchants. The group’s chargeback rate (the proportion of all transactions that are disputed and require refunds) was below 0.05%. That’s good; anything below 1% spares the merchant from fees. Square regressed instances of fraud among its users against traditional credit checks and found the old-school method to be no more accurate in predicting fraud. Credit checks may overly punish the innocent, too. More than 30% of the well-behaved applicants approved by Square would have been denied a traditional merchant account.

I have never had a traditional merchant service account, because my business is seasonal, and it wasn’t worth it to me to pay fees all year round. But people don’t always have checks with them, especially if I’m setting up QuickBooks on their laptop in a coffee shop. I love the instant gratification of being able to generate and email an invoice on my iPhone, and immediately receive payment then and there.

So far it has worked great. Swiping’s a little tricky you have to swipe very quickly and hold the card reader steady with the slot parallel to the phone but I got the hang of it. (I have a first generation reader. The new ones are supposed to be less finicky.) The money has shown up in my bank account the next day. They deposit the net amount after fees, instead of waiting till the end of the month to take their fees out.

It generates a nice emailed receipt, with the option of adding a picture of the item sold. I haven’t used this feature yet, as tax returns tend to look boringly alike. You can also do a receipt for cash transactions by typing the information in. The seller’s copy of the receipt only shows the first few characters of the buyer’s email, which is a thoughtful way of preventing spam. Nothing is stored on the seller’s phone, either. The information is encrypted and transmitted to Square without ever being on the phone itself, so no worries about PCI compliance or security.

I see this as being a great opportunity for small businesses. If you don’t need a POS cash register, you could take payments anywhere in the store, and be as cool as Apple. If your business takes you places beyond the grid, you can still get paid. It will be interesting to see what new business ideas people come up with when they have an inexpensive way to take payments anywhere.

New one above, old below

January 7, 2011  – Someone from Square read this blog post (!) and sent me one of the newer readers. It is flatter and slighter wider with more curved edges, and is more white instead of cream. It does seem to swipe better. (I’m not considering it compensation because they send them out free to everyone ; )