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Square Provides Easy Alternative to Cash and Checks

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Once is a fluke, twice is coincidence, but three times is a trend. In one recent evening, Square, the service that lets you take credit or debit card payments via a mobile device by swiping the card through a small plastic magnetic-stripe reader, came up three separate times.

The first was when I was out to dinner with six other people, and we were settling the check. One person pulled out his iPad and said that he’d pay and then charge our credit cards rather than saddle the server with seven separate checks. And since we all had to get to the meeting at Rochester’s Apple CIDER user group to listen to TidBITS publisher Adam Engst talk about Lion, the extra speed was welcome.

Later that evening at the meeting, our treasurer offered Square as a payment option for the first time. Apple CIDER members looking to renew their memberships or buy items from our speed auction could participate even if they had forgotten their checkbooks or hadn’t stopped at an ATM for cash.

The third and final usage of Square that evening was mine: when doing my parental duty by flogging Girl Scout cookies for my daughters, I offered to swipe a card and take the order down on my iPad.


Clearly, Square is going mainstream. For me, this day couldn’t come quickly enough! Before Square, created in 2010 by Twitter co-founder Jack Dorsey, accepting payments via a mobile phone had never been practical. There were ways of sending a purchase request, but it was up to the buyer to complete the purchase. In contrast, mobile transactions with Square are easy and efficient. As a freelance computer consultant, using Square means that I get paid more quickly and spend less time at the bank depositing checks.

Improving Casual Transactions -- Cash and checks have intrinsic downsides as ways of exchanging money between individuals. Cash is convenient as long as I’m paying in evenly divisible amounts, and if I happen to have the right amount with me. Reimbursing a friend $11.38 in cash for my share of dinner is annoying if I have only $20 bills from the ATM in my wallet. Checks are convenient, too, because I can write them for any amount that my bank account can cover, but I have to have my checkbook and a pen with me, and even then, they’re a little clumsy. What’s more important is that cash and checks work for both the person paying and the person receiving the money, even though making change and depositing checks are fussy.

Square opens up to individuals the option of accepting the third major payment method we use today — credit/debit cards. The payment side is far from new — we’ve all been paying for things with credit cards for decades — but until Square, receiving money via credit or debit cards was far beyond many small companies, much less individuals, due to the effort of setting up the necessary “merchant account” and dealing with the fuss of processing cards.

As a result, Square becomes compelling for anyone who needs to accept payments quickly and easily. Like cash, Square payments happen instantly (well, overnight) without having to take checks to the bank. And as with checks, buyers can always pay with “exact change” because sellers can type in any amount they want.

Square has several other attractive features, too: because the Square card reader connects to a mobile phone or other device that you’re likely to have with you, it’s portable and convenient. Losing or damaging your reader isn’t a catastrophe either, because it’s free and doesn’t contain any identifiable data. And both the iOS and the Android versions of the Square app are also free.

Let’s look at buying and selling in a bit more detail.

Buying with Square -- Making a purchase from a Square-equipped seller is easy, and follows these steps:

  1. Once the seller has your total, you swipe your credit card through the Square reader, just as you would with traditional credit/debit card readers.

  2. You’re asked to “sign” the face of the device’s touchscreen, much as you would in one of the newer integrated card readers in many grocery stores. You can sign with either your finger or a stylus; many store card readers don’t accept finger input.

  3. The Square app sends your payment request back to the Square servers for approval.

  4. If the payment is approved, you’re asked if you’d like to receive a receipt via email, or via text message to your cell phone. Notably, receipts sent via email contain a map of where the transaction took place.

For security and privacy reasons, sellers never see your credit card number, nor any contact information that appears on your receipt. This eliminates the concern of a rogue waiter in a restaurant recording credit card numbers in back while working up your bill.

Selling with Square -- Obtaining a Square Reader (what Square calls the magnetic-stripe reader) is easy: Fill out the form on Square’s home page and they’ll ship one to you for free. In my case, the reader took several weeks to arrive, but I hear they’re coming more quickly these days. If you need to have the reader right away, they’re available for $10 at the Apple Store and Target now, and soon at Walmart. Square credits you back the $10 when you sign up.


Square does require that you provide them with enough bank account information to make deposits. I found that it took only a couple of days for them to confirm my accounts.

Once you have the reader, and Square has confirmed your banking information, you log in to your Square account using the Square app, and you’re ready for business! I found the Square app to be quite flexible. I could adjust settings about when to collect signatures, whether or not to add sales tax (and at what percentage) to a sale, and specify if I wanted to allow tipping.

Square offers the option of skipping signatures for card payments under $25. Skipping signatures for small payments saves time, but (curiously) prevents customers from leaving tips.

Though the iOS versions of the app are nearly identical, there is one advantage to using Square on an iPad. If you sell the same items repeatedly, you can define those items ahead of time in the Square app, and then group them onto a “shelf” to keep them organized. Each item gets its own button, which can either be a color label with a few letters on it, an existing picture from your Photos app, or a new photo from the iPad’s camera. I used the Shelf feature to make buttons for my daughters to sell Girl Scout cookies. One button for Thin Mints, another for Samoas, and so on. Each button was color-coded to match the color of the cookie’s box.

The sales process is simple, just like the purchasing process:

  1. You enter the total to be paid, or pick items from a pre-defined shelf.

  2. You tap the Charge button and specify whether the transaction is cash or charge. (Square can keep track of cash transactions to centralize your record-keeping.)

  3. With a physical card present, you swipe the card, and hand your device to the customer for them to review the transaction and enter their signature. (To prevent accidents, it’s a good idea to protect your device with an easily gripped case.)

    Alternatively, if you’re performing a CNP or “card not present” transaction (if you were taking payment over the phone, for example) you type in the card number, the expiration date, CVV number, and the cardholder’s billing ZIP code; these additional pieces of information guard against fraud. Square’s fees are slightly higher for CNP transactions because of the increased chance of fraud.

  4. After the transaction is approved, Square sends you an email confirmation containing details of the sale. The email you receive, unlike the formatted email sent to the purchaser, is text-only.

Square can process payments from any U.S.-issued and nearly any international credit, debit, pre-paid or gift cards that have Visa, MasterCard, American Express, or Discover logos. When you make a sale, however, you don’t get the funds immediately; instead, funds are held overnight and deposited to your bank account the next business day. (This is entirely reasonable, and similar to normal merchant accounts.) The Square User Agreement provides the details about how payments work.

The barriers to using Square are almost non-existent. Sure, you need a compatible mobile device with Internet access, but the magnetic card reader and the Square app are completely free. Square does not require a contract: the service simply takes 2.75 percent of the transaction when you swipe a card, or 3.5 percent plus 15 cents for CNP transactions. Those percentages are entirely reasonable, and in some cases, lower than a traditional merchant account.

The flat transaction fee and complete lack of a contract are the other revolutionary components of this service. Typically, taking credit cards has been left to companies that can justify the fees and hassle associated with having a merchant account. These hassles typically include a multi-year contract that includes renting bulky and often-primitive point-of-sale terminals, paying monthly processing and reporting fees, paying different rates depending upon the card used, and performing all sorts of end-of-business-day processing. Furthermore, merchant account fees are often calculated based on the risk associated with your sales volume, what ZIP code you sell in, and the category of products you sell.

For one business near me, Square’s flat rates justified abandoning its current card service provider altogether!

Portability and Novelty -- The novelty of swiping credit cards with an iPhone or iPad is a good sales tool, too. My wife was recently in charge of a “merch table” at an event. She set up 40 items on a Square shelf in 30 minutes and enabled sales tax at the appropriate percentage. By the end of the event, she had processed over $3000 in sales, including a 50-percent increase in sales for raffle tickets because customers could use their cards long after their pocket-money was gone.

It’s easy to envision Square readers being used anywhere informal transactions take place. Garage sales and farmers’ markets are the most obvious, but Square would also be helpful for in-person service industries. Massage therapists, plumbers, electricians, food vendors, Craigslist sellers, even teenagers mowing lawns — the list goes on and on. Check out Square’s YouTube video for more examples.

I think it’s fantastic that Square has removed obstacles from the path of anyone who needs to be able to accept credit or debit cards in payment for products and services. It’s a big win for individuals and small businesses, and being able to use Square with common iOS and Android devices makes such transactions even more attractive.

[Dennis Wurster provides Mac-focused expertise to businesses in and around Rochester, NY. He has written for Ziff-Davis’s “Mac Administrator’s Journal” and presented at the User Group Leadership Conference. Dennis is a certified Apple Product Professional and currently blogs the solutions he discovers at Mac Smarts.]

 

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Comments about Square Provides Easy Alternative to Cash and Checks

Michael Müller-Hillebrand  2011-11-08 16:42
As the magnetic stripe of a card can easily get copied, virtually all bank or credit cards (in Germany) now work with a chip and almost every merchant has a terminal where you no longer swipe the card through but stick it in.

How easy would it be to present a duplicate card to a Square merchant?
SSteve  2011-11-08 17:53
"How easy would it be to present a duplicate card to a Square merchant?"

Exactly as easy as presenting a duplicate card to a non-Square merchant.
Adam Engst  An apple icon for a TidBITS Staffer 2011-11-08 18:31
From what I gather, Square can't handle the chip-and-PIN cards that are common in Europe and nearly unknown in the U.S., where magnetic stripe cards are universal.

http://www.quora.com/Can-Square-accept-cards-with-a-chip-e-g-those-in-Europe

I do see that there's a Swedish company that offers a similar service with chip-and-PIN, but only within Sweden right now.

http://izettle.com/
Dennis Wurster  2011-11-08 23:37
That's right, Adam.

Square is US-only, for now. Dorsey is very interested in expanding though, as he talked about in a recent interview with Walt Mossberg.
But did you eat the 2.75% on the Girl Scout cookie transactions? Because it seems that you would be required to do so, as Girl Scouts wouldn't allow an upcharge.
Dennis Wurster  2011-11-08 23:35
It's true, I do 'eat' that charge in order to make the transactions easier. The fee on a $3.50 box of cookies is just under a dime. I've found that Square makes it easier to sell more boxes overall, though.
Eolake Stobblehouse  An apple icon for a TidBITS Supporter 2011-11-15 02:13
It's not clear to me if you can use square over the Internet. Take payments from your web site for example?
Adam Engst  An apple icon for a TidBITS Staffer 2011-11-15 03:36
Technically speaking, yes, but people would have to send you their credit card numbers for you to enter by hand. It's really made for in-person transactions.
Eolake Stobblehouse  An apple icon for a TidBITS Supporter 2011-11-15 03:44
Thanks, friend.
My whole Think is web and Net, and sometimes I forget that there are still a tiny minority (!) left who do stuff person-to-person.
Rob Lewis  2011-11-15 03:32
Intuit is furiously flogging a similar gizmo, in fact they're giving it away free.

Personally I hate Intuit, but WTF?
Adam Engst  An apple icon for a TidBITS Staffer 2011-11-15 13:25
Yeah, I can't see relying on Intuit. They'll just decide in a year or two that something you've set up can't be maintained and will kill it. :-)
Dennis Wurster  2011-11-15 18:38
When I was researching the article, I applied for their reader, but they never bothered to send me one. I'm interested in comparing/contrasting the two.
Brian Hannon  2011-11-15 04:25
You say, "Before Square, ... accepting payments via a mobile phone had never been practical."

Did you somehow forget that PayPal has existed for more than a decade? And has had a mobile app for quite some time? And for small payments between friends avoids the 2.75% fee that Square charges? And doesn't require carrying around a silly device or a physical credit card?

Venmo is a new(er) service which has a far simpler interface than PayPal and works with non-smartphones, for anybody who finds PayPal daunting.

It seems like Square is a perfect application for Girl Scout Cookies or a small physical business where swiped cards still might be the most convenient option, but for payments among friends, Square seems like overkill.

I'm surprised your friend splitting the bill ate the 2.75% and spent his time fiddling with cards and punching numbers into an app rather than let the waitress actually do her job.
Adam Engst  An apple icon for a TidBITS Staffer 2011-11-15 13:32
PayPal is certainly an option in certain situations, but it's not really aimed at the same situation as Square. Most people don't have PayPal accounts, whereas the vast majority of people have credit or debit cards. And while there is a PayPal app, I'm willing to bet that most PayPal users don't have a phone that it runs on or, if they do, the app itself. (I actually do have an iPhone and the PayPal app, but I've never had any occasion to use it, since it came out.)

The splitting-the-check example was not meant as "how you will use Square" as noting "this actually happened." The real use of Square is in physical transactions among people who likely don't know each other well, if at all, and thus are going to use a lowest common denominator method of completing the transaction. Before Square, cash and checks were the only option for individuals. Square adds credit/debit cards to the mix for normal people.
Alexandre Leroux  2011-11-19 21:16
Adam, I was initially excited by Square's offer, until my wife made me realize that buyers don't need a Paypal account to pay you via Paypal. Paying via Paypal on Paypal's website on the iPhone "works fine", maybe not as straightforward as swiping a card, but it does work. My wife recently sold her products that way at a booth.

So I feel the choice between the two options ends up on the consideration of the use case and related transaction fees. What have I forgot or not considered?
Adam Engst  An apple icon for a TidBITS Staffer 2011-11-21 16:14
It's certainly not necessary to have a PayPal account to pay via credit card through PayPal, but I'd be very very leery of putting my credit card details into a Web page running someone else's iPhone, which is what it sounds like your wife did. Just seems like a bad idea, what with forms being saved and other unknowns.

I'd have to verify the details, but I presume you still pay a transaction fee when you take a credit card from someone via PayPal, which means that there's no benefit to avoiding Square, since PayPal's transaction fees would be similar.

All in all, I think this is the sort of question that you should answer on your own. If Square is enough easier that you make one more sale a day, that will more than eat up any possible difference in transaction fees, if any exist at all.

Don't get me wrong - I have no dog in the race here. I just think that PayPal is good for different sorts of transactions (entirely online ones, between people who have PayPal accounts).
Brian Hannon  2011-12-08 19:09
Find it interesting that you'd be "very very" leery of typing your credit card number into what's, basically, just another computer terminal. If an unethical merchant wanted to steal credit card details while making any sort of a transaction, there are dozens of easy ways, as simple as having a digital camera set up near the payment terminal, or swiping your card through a separate magnetic reader with sleight of hand. How often do you pay for dinner with a credit card where your card is out of your hand and sight for several minutes?

Using a browser on somebody else's phone might be perceived as more risky, but it isn't.
Adam Engst  An apple icon for a TidBITS Staffer 2011-12-09 05:42
I guess it just comes down to what one imagines. I can easily imagine a Web form that does nefarious things with a credit card number because I could create one without much difficulty and there's no way anyone using it could know.

In contrast, digital camera snooping and sleight of hand strike me as much more dangerous because they could easily be caught by any observant person, even someone unrelated to the person running the scam. Plus, they'd be hard to set up and implement in the kind of one-on-one situations that are being discussed here with Square and PayPal.

The restaurant is a different situation, unless you postulate that the entire staff is in on the scam; the danger with giving a card to a waiter is that that person or someone else behind the scenes will copy it, not that the restaurant has a policy of doing so.
Bradley Metcalf  2011-11-18 15:47
The square is a great deal ONCE YOU GET SET UP..... I have it on my old Droid phone but I'm getting old and hard to see/handle that small device so I'm looking for a inexpensive tablet that can use the square. There is no info on which tablets can be used FOR SURE. I have tried two different ones in the $200 price range; both use android 2.2 and has the right earphone plug but is incompatable.
Adam Engst  An apple icon for a TidBITS Staffer 2011-11-18 21:12
I hate to say it, but that's the Android tax. :-) It will just work with the iPad for sure.