What Is Square?
Many of you have seen it and probably wondered – what is that and how does it work? Square is essentially a person-to-person payment system that marries the convenience of “plastic” and “mobile devices” for everyday transactions.
So now to answer the “how does it work” question: the small magnetic reader plugs into most headphone jacks of an iPhone, iPad, Android phone, tablet etc. When a credit card (or a debit card) is swiped through the reader, it reads the data and converts it into an audio signal. In very simple terms – it is a virtual GPS system, which in turn communicates your card swipe to the payment networks in order to complete transactions.
{image source: http://www.wired.com/business/2012/08/starbucks-signs-up-with-square-to-process-credit-debit-payments}
Over the past few months, I have had a few personal interactions with – and also read a lot of articles about – the “Square” and found the pros definitely outweigh the cons for this little device that does big things:
Pros
- Amazingly small (only about ¼ inch thick), portable and durable
- Brings mobile credit card processing to the masses in a compact and unique device
- App is free – no monthly service fees
- No setup and no contract
- Security – Square has all security measures in place to protect information via 128-bit encryption (SSL certified by VeriSign, is PCI-DSS level one compliant and the app is password protected.
Cons
- Transaction fees @ 2.75% per swipe are not the lowest in the industry, but all of the other features seem to over-ride this piece for users
In more recent news, Square announced in August 2012 that starting in the fall, it would take over credit card processing for Starbucks stores and that Starbucks would now accept Square as a payment tool.
Does this partnership mean that the Square/Starbucks (SBUX) deal will spark the end of cash transactions all together? The simple answer is “no” – while this is a very big deal and is the start of more exciting things to come – for now, it seems like a back-end transition. Square will handle transactions but the SBUX existing infrastructure will handle the rest. For now there won’t be any Square-powered iPad registers and no Square readers. Yet.
What consumers will eventually see is:
- “Pay with Square” feature – which will act the same as the current barcode scan on your phone. Interesting to note – 30% of Americans are interested in using mobile payments (Forrester Research).
- Loyalty programs will stay the same with 25% of SBUX customers paying through this feature. Square will just provide another option for the other 75% of customers that don’t pay with the SBUX Gold Card.
- “Pay by Name” – Square/SBUX will eventually introduce a service that lets you pay just by mentioning your name to the cashier which shaves 40 seconds+ off your wait time – this could mean a difference between waiting in line to pay or deciding you have to get to work.
As with any new entry, Square is facing competition from the usual players like Google (GOOG), PayPal, Sprint and Microsoft (MSFT) as well as start-ups like Scvngr/LevelUp and GoPago. But while these companies are hot on the heals of Square’s recent success, ‘Square’s deal with Starbucks puts them solidly in the post position in the mobile payments race.’ (Forbes.com)
Have you tried the Square? What are your thoughts?
~ Tracy
