Mobile Credit Card Payment Service Square Goes Live

“The doors are (finally) open @Square & we’re going big,” announced Twitter co-founder Jack Dorsey with a tweet. His latest project enables users to plug a small square (hence the name) credit card reader into their smart phone and accept credit cards for payment.

Square has been tested quite expansively since the service’s tests first began several months ago. According to USA Today’s Jon Swartz, about 50,000 Square readers were shipped to users, “ranging from coffee shops and pizza deliverers to doctors and piano teachers,” during the testing phase.

The Square credit card transaction process is quite simple. A buyer swipes his credit card through the reader and signs the sales receipt on the smart phone’s touch screen. A photo of the card’s true owner appears on the screen and, if it’s the right person, the seller taps a button and the transaction goes through.

Square also enables users to “generate email and SMS receipts for cash and card payments, maintain frequently sold items, calculate sales tax, and effortlessly manage and visualize all the money you take with an intuitive web-based interface,” according to the company.

There were reports, however, that things didn’t always go as smoothly as advertised. CNET’s Caroline McCarthy, for example, reported in February that during her tests the “credit card reader didn’t always read swipes and the software can be slow.”

Currently Square is available on iPhones, including now on iPhone 4, iPads, iPod Touches and some Androids, including the Droid, Droid X, Nexus One and Galaxy S. One smart phone conspicuously missing from this line-up is RIM’s BlackBerry and there is a good reason for it: most BlackBerry models lack a touch screen, which Square requires to enable buyers to sign the transaction receipt.

Square ships the card reader to approved users for free and charges 2.75% + $0.15 of the transaction’s amount, with no monthly charges or set-up fees. No long-term contract is required.

Now, compared to traditional credit card processing service providers, Square’s pricing is quite steep. A typical rate for retailers accepting credit cards in person nowadays is 1.65% + $0.20 of the transaction amount. True, there often is a monthly fee of about $10 or so, however some processors charge no such fees if the merchant generates a certain minimum of transactions.

But should Square be compared with traditional payment processors? Is Dorsey actually competing with the established players in our industry? The answer is obvious and it is “no, he does not.”

Dorsey is not targeting your local convenience or liquor store (although he would certainly ship them a reader if they requested one). No, Square is aiming at individuals who may need to accept a payment for a Craigslist’s sale or to split up a restaurant bill with friends once a month. This is a group that is not anywhere near the radar screen of traditional processors.

Square’s competitors are actually other start-ups, such as Boku, iCharge, Swipe It and Mophie, to name just a few and hardly a week goes by without us hearing of a new start-up entering the fray. In the words of Morgan Stanley analyst Adam Frisch, as quoted by USA Today’s Jon Swartz:

“The market is so nascent and fragmented, new technologies that pop up in it are expanding the reach of the market”.

Image credit: Squareup.com.