Get Paid With Square

By now, many are at least casually familiar with Square, the startup company whose credit card reader and user-friendly software enable any small business or individual in the United States to accept credit card payments anytime and anywhere on their iPhone, iPad and Android phones.  While Square is currently making great strides, processing a reported $4 Million in credit card payments per day in June, founder Jack Dorsey is no stranger to innovation.  He also created Twitter.  And he gets around, having recently sat down with President Obama for the first Twitter Town Hall.  Square Inc. recently secured $100 million in Series C financing led by Kleiner Perkins Caufield & Byers, based on a valuation of more than $1 billion.  It’s high time that we take a closer look at Square from a technical standpoint here.

What is Square?
Square’s most visible product is their square-shaped credit card reader attachment that plugs into the headphone jack of an iPhone, iPad or Android phone.  The Square readers are free via the web, and can be purchased for $9.95 at an Apple Store.  Naturally, Square provides accompanying software for those mobile platforms as well.  Finally, in collaboration with Chase, Square provides the credit card transaction processing and payment.  Square’s simplicity extends through their card reader and software all the way to their service fees.  Square charges merchants 2.75% of every swiped Visa, MasterCard, American Express or Discover transaction.  (Manual entry is allowed for situations where a card can’t be swiped, however service fees for those entries will cost 3.5% + 15¢ per transaction.)  At 2.75% of every swiped transaction, many established merchants discover that they’re money ahead with Square versus a competitor who may have a monthly fee and a flat fee per transaction on top of their own percentage fee.

[Image courtesy of Square.]

What Square is Not
Having shown the Square device to several people in the past week, the most frequent initial misconception is that the reader is for individuals to swipe their own credit card when making online purchases from a retailer such as  While it would be nice to not have to key in your credit card number on a web site, saving a few seconds by swiping wouldn’t necessarily be groundbreaking.  Again, the reader, software and service are for individuals and small businesses to accept credit card payments from their customers.

Initial Setup
As I’m the type who prefers to set up an account first via a real computer rather than on my iPhone, I began with a visit to  You can also download the Square app to your mobile device and sign up from there.  At the time of this writing, visitors to are prompted with the opportunity to set up a new account for free from the home page.

  1. I began by providing my e-mail address and a desired password, before moving on to provide my name, current address, social security number and other personal details to verify my identity.  Square provides the same level of scrutiny as a typical online credit application, asking multiple-choice trivia questions from your credit history to validate your identity.  It’s unlikely that you could establish an account using a fabricated identity or steal that of a real person.
  2. Next, Square alerted me that they would be sending a free credit card reader.
  3. I was then presented with an option to send a text link to my iPhone to download the Square app.
  4. Though optional, I linked my personal checking account to my Square account to receive payments.
  5. I provided a PO box address as my ‘receipt address’ that any customers would see.  If you are a freelancer selling items or services while on the go, you may wish to specify a PO box as your receipt address so as to avoid providing strangers the location of your personal residence.
  6. Before signing out of the web site, I added the snnyc blog icon as my logo.
  7. Finally, I used the text link on my iPhone to install the software.  I promptly signed in to my account to confirm that it was working.  Afterward, I was left to wait patiently until my free reader device arrived.

Using The Reader (AKA, The Fun Part)
My Square reader arrived in my mailbox four business days later, having been shipped from California to the East Coast.  There was no mistaking from the outside what I’d find folded neatly within the 5 by 8 inch envelope.  Opening Square’s package delivers a decent presentation experience – especially considering the free pricetag – with the device encapsulated in the center of a foam block wrapped by paper wings providing additional information.  Square even throws in a window sticker with the Visa, MasterCard, American Express and Discover logos, similar to what you’ve seen in every merchant’s window that accepts credit cards.

After pulling my Square reader out of the package, I plugged it into the headphone jack of my color-coordinated white iPhone 4 and and fired up the software.  The following is my first sample transaction.

  1. I specified the amount of my sample transaction at $25.  I typed in a description for the product as ‘Square Evaluation.’  And then I swiped an American Express Gift Card to continue.
  2. The prior screen faded to gray and ‘Authorizing’ appeared for less than 30 seconds.
  3. Next, I was prompted to sign for my transaction using my finger.  While I anticipated that this might be impractical, my signature came came out about as well as it does on many in-store credit card terminals.
  4. After signing, I was prompted with the opportunity to receive a receipt via SMS or e-mail.  (The e-mailed receipts look better.)
  5. Finally, I was presented with a ‘thank you’ screen.

After a transaction has been completed, the Square merchant receives an e-mail indicating the transaction amount and the total balance in the merchant’s Square account.  On the earlier sample transaction, I received $24.31 based on a transaction of $25.00.  Merchants can later review their recent transactions from the Square app or the web site at any time.

Transfer to Bank
Because I’d earlier linked my Square account to my Citibank checking account, my first two trial transactions were transferred to my account around two business days following my scans.  Going forward, Square transactions are deposited to my checking account on the following day.  It takes my bank another day or two to credit the deposits to my account.

Not The Only Game in Town
VeriFone, a well-known provider of electronic payment solutions, announced PAYware Mobile for iPhone in February, 2010, around the same time as Square.  For a cost breakdown between Square and VeriFone, see the FeeFighters interactive calculator.  As you’ll see from that tool, VeriFone offers a more complex series of fees that may be cheaper or more expensive than Square depending on the size and volume of your transactions.  Generally speaking, small transactions cost less with Square while very large transactions cost less with VeriFone.  Intuit has since jumped into the game as well with GoPayment, undercutting Square’s pricing model by 0.05% percent at the time of this writing.

Fraud Concerns?
As there’s more than one method of fraud, different audiences will likely have different concerns about it.  One part-time merchant to whom I demonstrated Square immediately asked about the potential for chargebacks.  She feared the idea of selling her merchandise to a stranger and accepting credit card payment, only to later have the payment reversed after the person was long gone with the merchandise.  This is a legitimate concern, as merchants may be charged back for any fraudulent Square transactions, just as they would from other credit card payment systems.  Some businesses factor in this risk as part of the cost of doing business, while others try to reduce the risk by other means such as asking for a photo ID.

Fraud concerns go both ways, with potential customers worrying that a merchant could rip them off as well.  Somehow we put this fear aside every time we hand our credit card to a waiter at a restaurant, but we’re far more conscious of it in other circumstances.  VeriFone has been on something of a kick trying to call attention to a perceived security problem with Square, namely that data is not encrypted between the Square reader itself and the phone that it is plugged into.  (Data is encrypted between the Square application and the Internet-based processing servers.)  From VeriFone’s perspective, the unencrypted link between Square’s reader and a phone could allow a malicious merchant to write a counterfeit Square application that surreptitiously steals the data of customers whose cards are swiped.  VeriFone fails to mention that many credit card swipes built into PC keyboards and point-of-sale terminals similarly don’t encrypt data between the card swipe and the computer itself, and are subject to the same hypothetical scenario and others.  As a security-minded consumer and professional, it would be easier for me to give VeriFone’s view more credence if their focus on and rebuttal of Square didn’t strike me as particularly self-serving.

Spur New Business?
One recurring theme that I heard when showing off the Square to my salaried peers was, “Now we need to think of a sideline business where we can make use of this.”  There’s something about Square’s dramatic simplification of credit card payment processing that really strikes a chord when witnessed firsthand.  When it’s this easy, we all want to be merchants.

The Bottom Line
The ease and low cost of deploying Square are second to none.  You can get started today with no financial investment and only a few minutes of your time.  You’ll pay a consistent 2.75% of every swiped transaction going forward.  The terms are fair.  The ease of use, combined with the ultimate mobility, may spur you on to business ideas that you haven’t considered yet.  Taken as a whole, Square offers a compelling proposition.  Whether you ultimately go with Square or a similar competitor, this type of service may well be the future of payment processing for as long as we still use plastic cards.