A year ago, many payments industry professionals dismissed Square Inc. as a startup with a clever little card reader that attached to mobile devices. Now, the Square card reader is so common that even the Salvation Army is using it to accept red kettle donations for the 2011 holiday season.
Square, started by Twitter co-founder Jack Dorsey, reported over 800,000 Square dongles in the marketplace - many of them businesses accepting credit cards for the first time. The company is reportedly processing about $11 million a day, and its card reader is now sold in Apple Inc. stores, as well as at big-box retailers, including Wal-Mart Stores Inc. Square has also attracted high-profile investors, including Sir Richard Branson, founder of the Virgin Group of companies.
Square recently unveiled the Square 2.2 application for Apple and Android mobile devices and the consumer-centric Square Card Case. The 2.2 app offers a loyalty feature that alerts merchants when returning customers enter stores and allows merchants to immediately offer customers coupons and discounts.
Additionally, merchants can now use Square to track the number of visits customers make to their stores. The 2.2 app wirelessly opens cash registers and prints receipts. Square also said it improved the ability for merchants to track sales histories, resend receipts and make refunds at the POS.
The Square Card Case works as an electronic wallet. It saves personal identification and credit card information on smart devices and lets consumers collect "cards" on their devices that store information such as physical location, contact information, coupons and purchasing histories.
The Card Case app detects when customers are near stores they frequent and signals the merchants' mobile devices, where tabs with customer account information, names and photos appear on merchants' POS screens. Customers only have to show merchants their purchases on their way out of stores; merchants complete transactions using information already provided, then transmit electronic receipts to customers.
Yet, with all this growth and apparent success, Square still has critics who maintain that the Square card readers are not secure and the technology is open to misuse. In March 2011, VeriFone Inc. Chief Executive Officer Douglas Bergeron, whose company directly competes with Square, said the Square device was not secure and illustrated that point with a skimming application for a Square card reader created by VeriFone in less than an hour.
Square's response to the VeriFone attack was to point out mag stripe cards are easy to skim even without technology. "If you provide your credit card to someone who intends to steal from you, they already have everything they need: the information on the front of your card," Dorsey said, adding that credit card companies continue to monitor cards for fraudulent activity and alert consumers when they see questionable activity.
Will Square technology continue to make inroads in the payments industry? The answer appears to be yes, despite its perceived flaws and assuming it continues to improve its business processes.
Jeremy Drazl, Founder and CEO of Inside Virtual LLC, a company providing technology, marketing and consulting services to organizations looking to develop social media strategies and turnkey virtual engagement solutions, told The Green Sheet he understands the appeal of Square but believes the technology is not up to the industrial demands of retail.
"I don't know about the long-term viability of Square transactions," he said. "When looking at retail POS hardware and equipment, how industrialized does the solution need to be to sustain coffee spills, drops, food, and all kinds of other daily abuse a terminal receives? The Square device is not sturdy."
Drazl pointed out that iPhones, for example, were not designed as POS devices. "If you are a vendor at a flea market or an art show where you are only doing a few transactions, Square may be a good solution for the market size," he said. "Anything more than that and you need something more rugged. The [security] vulnerability is giving anyone access to this technology. There's no screening. That is crazy."
Dale Laszig, Castles Technology Co. Ltd. Senior Vice President of Sales, has been involved in POS sales, installation and training since 1989. She said Square came along at the right time in a rapidly changing payments environment, in what she calls phase three of the industry's technological evolution.
Laszig said the first phase was the introduction of electronic transaction processing, when POS devices weren't as important to merchant level salespeople as was "demystifying the technology and demonstrating the benefits of taking credit cards."
She said the second phase emphasized "the primacy of the device" and was a period in which a diverse array of POS terminals offered faster processing and more services. Now, in phase three, a paradigm shift is underway, with consumers now controlling the direction of the market, according to Laszig.
"This is an extremely complicated, very fast, always on, always connected environment," she said. "We are in the age of consumers and the age of relationship marketing. Square is a microcosm of what is happening on a much larger stage. What is interesting about Square is its fluidity. The winners [in this evolving payments market] will be those companies that react very quickly and efficiently in the changing dynamics of a very dynamic market."
Laszig holds that if Square can help merchants attract more business and create deeper relationships with clients, the alternative payments company will prevail. "If it is just a cool gadget, people will move on," she said.
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