Square Takes Aim At Traditional Cash Registers

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This story has been updated.

Square Inc., an early and successful contender in mobile payment acceptance, has launched a system that it says can replace traditional cash registers. But it might not find the same success it had meeting the needs of merchants that previously did not accept plastic.

Square's earlier card reader was focused on small merchants, such as vendors at a farmer's market, that might not have the ability to use a full point-of-sale terminal.

In this way, the San Francisco-based company was attempting to fill a void in the market. Its new Square Register app instead takes aim at the established payment system; its promotional video even depicts a user removing an old, bulky cash register to make room for an Apple Inc. iPad.

The Square Register app, announced March 5, helps merchants track inventory and customer transactions. It works with the same Square card reader that many merchants already use for basic card payments.

Over a short amount of time, Square built a strong following, even drawing an investment from Visa Inc. and Virgin Group founder Sir Richard Branson last year (see story).  And last week, the New York City Taxi and Limousine Commission agreed to test using Square's reader in 30 taxis (see story).

Square launched its original mobile card reader for the iPad in May 2010, just a month after Apple released the original iPad. The new Square Register app could similarly capitalize on the buzz surrounding the new iPad version that Apple is expected to announce this week.

Though rival payment companies sell form-fitting sleeves for iPhones, iPads and other devices, Square has kept to its original design of a small plastic cube that connects to any mobile device's headphone port.

Users of the Register app also have access to an analytics dashboard designed by Square for small-business owners. The dashboard shows transaction details sorted by month, time of day, payment size and other categories, a Square representative said in an email.

The Square Register app has potential, analysts say. The new software allows consumers to pay using Square's Card Case mobile wallet. With Card Case, a customer would not have to swipe a card when paying at a merchant that uses a Square product for payment acceptance.

With the Register app, Square "will better market the Card Case, and they can actually get consumers to have a preference for Square transactions," says James Van Dyke, president and founder of Javelin Strategy and Research. "They can get cardholders to feel more comfortable with a Square … [app] because they are allowing consumers to set controls around transactions."

Though the Register app is aimed at merchants with more complex needs than the original Square reader could serve, it does not address the needs of larger merchants, analysts say.

"I do not expect them to be successful competing against enterprise-class products … since their product will be constrained by the capabilities of the iPad and lack of access to back-end systems," says Wedbush analyst Gil B. Luria. "And since their cost of card acceptance is far higher than other acquirers, they will not be able to attract bigger retailers."

The inventory-management features of Square's new app in some ways resemble VeriFone Systems Inc.'s GlobalBay software, which also uses Apple devices (see story).

VeriFone, of San Jose, has clashed with Square in the past. Its Payware Mobile system competes with Square's reader, and VeriFone CEO Douglas Bergeron has publicly attacked Square for alleged security issues. Last year, Bergeron claimed in an online video that he could turn Square's reader into a card-skimming device with the right software (see story).

This time around, however, the two companies are targeting different markets, with VeriFone better suited to serve larger companies, Bergeron says.

"We are already selling into top 500 retailers, and we have the [independent sales organization] community for [small and midsize businesses]," Bergeron said in an email.

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