Square Inc. has based its sales pitch on the ease of plucking its mobile card reader off a store’s shelf and suddenly being able to accept swiped card payments.
But Square’s new “Business in a Box” product, which starts at $299, aims to attract merchants that have more complex needs. It can include a cash drawer and a receipt printer, which merchants would otherwise have to purchase separately.
The move has converted at least one Square holdout, the proprietor of a 30-year-old donut shop in Santa Monica, Calif. Asked if he’d use Square previously, Sean Tao, who owns DK’s Donuts and Bakery, says: “No.”
“Because I do need a cash register. I do need a printer. And I’d have to find my own [if I used Square], and you don’t know if it’s compatible with the iPad,” says the 25-year-old, who inherited his business from family members about three years ago. “It was more of a headache. [Before] you’d have to go out of your way to make it work.”
Tao began using the bundled “box” in early December, after receiving a cold call from a Square representative.
Now, he runs roughly 95% of his card payment processing through Square, keeping his old point-of-sale system (which he describes as more expensive) for emergencies, such as when the Wi-Fi in his shop isn’t working.
“I try to process as many [transactions] as I can through Square,” he says.
Square apparently has struggled to win over other merchants to its portable card reader.
Jack Azimi, who owns Rockwell’s Restaurant in New York, couldn’t accept credit and debit cards after Superstorm Sandy because his phone line was knocked out.
Azimi would seem like the perfect candidate for a mobile card reader, but he couldn’t use Square because he didn’t own a smartphone to plug the device into, he says.
“You don’t think of those things when everything is going right,” he said in an interview last month.
Even Starbucks, which famously invested $25 million in Square last year and uses the company for processing, has never agreed to use its hardware.
Square’s new bundle marks the first time it has charged for its hardware. The switch constitutes a stark change for the Silicon Valley company.
“I think it’s notable,” says Brian Riley, a senior research director in the retail banking and cards practice at CEB Towergroup. “What Square is finding out quickly, and only because they grew so fast, is that you can’t approach cards from a single angle, and [right now] that’s kind of what the Square model does — it’s a device that plugs into a phone.”
Already, Riley notes, many others have copied that model, after Square legitimized the market — TSYS, VeriFone (unsuccessfully) and PayPal, to name just a few.
Then, too, others already offer bundles similar to Square’s “Business in a Box.”
For instance, NCR is selling its point of sale payment system — which costs $499, and comes with a $79 a month fee (waived for the first month after purchase) — at Staples.
The NCR package includes NCR’s Silver card reader, a cash register, an iPad stand and a cash drawer.
“You can’t be a one-trick pony in this business and survive,” says Riley. “[And] you can’t diminish that these guys [Square] have a million customers.”
Indeed, the decision to bundle hardware and charge a price for that package is natural for Square, says Jim Van Dyke, the chief executive and co-founder of Javelin Strategy & Research, a division of Greenwich Associates.
“Merchant payment processing is one incredibly fragmented market, despite years of consolidation,” Van Dyke says. “Square will have to bet on achieving profitability that can only come if they achieve scale.”
Building up to that critical size will present challenges -- expensive challenges, he says.
“And that means digging deep into their founder’s [Jack Dorsey’s] war chest,” Riley asserts.
The hardware might prove itself valuable to smaller merchants — “not only simplifying payment options but also bringing in advanced technology,” he adds. “Makes you wonder if and when Square will launch a significant foray into mobile POS payments that benefit consumers, merchants and banks.”
Still, Square remains infamous for its talent for generating favorable public relations. And, while this most recent announcement surely represents a stab at solving some of its real business problems, it has elements that appear more similar to sizzle than steak, says Rakesh Agrawal, a consultant on mobile payments and marketing.
“It just seems like a hack,” Agrawal says. “I don’t see it as being meaningful to their business. They don’t really have a business channel for this.”
He also maintains that Square’s retail relationships with Starbucks and others to distribute its dongles don’t necessarily mesh with what small business owners want.
“They’ve tried to sell the Square reader at retail, and I don’t know how successful that’s been, but still that’s not how small businesses go to buy payments services,” says Agrawal. “They don’t go to Starbucks hoping to pick up payments technology.” ƒÞ
PayPal’s UK Card Reader
Aids Chip-and-Pin In U.S.
The chip-and-PIN version of PayPal’s Here mobile card reader is set for its debut overseas this year, but the U.S. will feel the splash as well.
“PayPal has morphed into an entity that is a lot more like Visa and MasterCard than an online payments company,” says Philip Philliou, a payments consultant. “If PayPal can convince both consumers and merchants that PayPal transactions are inherently more secure because of EMV [chip-and-PIN cards], that will be a catalyst for growth on both sides of the Atlantic.”
PayPal Here, which the company launched last year, enables merchants to use a small card reader that attaches to a mobile phone to accept swiped card payments. It can also read cards with the phone’s camera, using tech from Card.io, which PayPal bought last year. The EMV chip-and-PIN version will use a PIN pad that communicates with the merchant’s smartphone via a wireless connection.
The EMV standard improves security over magnetic-stripe cards and is common in the UK and other countries, where it is often called chip-and-PIN because the cards typically require a PIN code for each payment. The U.S. transition to EMV remains a work in progress, observers agree.