Square's updated mobile card reader adds a lot of new technology, but its omissions speak volumes about the company's strategy.
Despite a nearing deadline for U.S. merchants to accept EMV-chip cards and Square's push into EMV-compliant Canada, the new reader does not support chip-based contact or contactless payments. These omissions, along with the company's July discontinuation of its $299 Business in a Box bundle, demonstrate the importance Square places on providing a free version of its hardware.
"EMV readers are considerably more expensive to manufacture and providing them at no cost is not a sustainable practice," says Jordan McKee, an analyst at Yankee Group. "I think the likely approach we'll see from Square is offering both a free mag stripe-only reader and a [combined] mag stripe and EMV reader that is sold for a fee."
The Business in a Box bundle originally included two of Square's free readers in the box. The bundle's other components a cash drawer, a bar code scanner and a receipt printer are now sold as optional add-ons to merchants who have already agreed to purchase the $99 Square Stand, an iPad stand meant to take the place of a cash register.
This shift gives Square two distinct hardware lines: a small, free reader for the micro-merchants who may not be willing to pay more, and a bigger $99 stand for merchants who are willing to potentially invest hundreds of dollars to build a complete point of sale package.
For the smaller merchants, Square may not see EMV as a necessary cost just yet. Most U.S. merchants have until October 2015 to start accepting EMV-chip cards, which improve security over magnetic-stripe cards. After the October 2015 deadline, the card networks plan to impose greater fraud liability on merchants that do not accept EMV cards (fuel merchants have until October 2017 to adopt EMV hardware).
"Smaller merchants are showing less interest in EMV simply because their fraud rates are lower," says James Wester, a research director for IDC Financial Insights. Giving small merchants access to electronic transactions is still the core of [Squares] business. I dont see them getting away from offering inexpensive dongles to that group of merchants."
Even mega-merchants may not see EMV adoption as urgent. Wendy's, for example, said in April that its fraud on swiped card purchases is so low it's "not worth mentioning."
Square's new reader is available today in the U.S. and Canada, and is 45% thinner than the company's previous reader, Square spokesperson KC Simon said in an email.
"On the swipe accuracy front, the new reader actually reads redundant data from the credit card's magnetic stripe. This increases the chances of a successful swipe, even from dinged-up, imperfect cards," Simon says.
The accuracy improvement is driven by new technology. Square is providing custom, purpose-built parts to improve swipe accuracy, lifetime and compatibility, Simon says.
One of the main issues with Square's previous reader was that the swipe didn't feel "satisfying," McKee says. "At times there was confusion if the card was actually read. The new version will help address this issue with more resistance on the card. The updated reader is also more durable and should better endure wear and tear."
Square will probably maintain its free mag stripe attachment, even if it eventually begins offering an EMV version, McKee says.
The reality is that smaller merchants and particularly micro merchants either aren't overly concerned with EMV or are unaware of it altogether. Things will get interesting when we start to see instances of small merchants being held liable for fraudulent mag stripe transactions. That's when EMV will become very real, McKee says.
Many other mobile point of sale providers offer EMV outside the U.S. iZettle, SumUp and Swiff are Visa Ready certified for EMV acceptance; and PayPal Here, the eBay subsidiary's mobile point of sale product, offers EMV acceptance in Europe.
Roam, an Ingenico unit that sells mobile point of sale technology and other merchant services through third parties, supports EMV in Europe and is testing mobile EMV payments with U.S. clients.