A Square Revolution

Let’s face it, in today’s world if you or your business isn’t accepting credit cards, you’re losing out on sales.  The trouble is that most credit card processing contracts can be too expensive, too complicated, or just too impractical for artisans, local food vendors, or other small businesses to implement.  Mr. Downtown hotdog vendor, I’m [...]

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Let’s face it, in today’s world if you or your business isn’t accepting credit cards, you’re losing out on sales.  The trouble is that most credit card processing contracts can be too expensive, too complicated, or just too impractical for artisans, local food vendors, or other small businesses to implement.  Mr. Downtown hotdog vendor, I’m talking to you.  Traditional card processing options such as your local bank normally require a contract, minimum monthly charges, as well as several hundred dollars up front for a processing machine.

Enter Jack Dorsey and SquareUp credit card processing.  As one of the co-founders of Twitter, Dorsey revolutionized social media in the late 00s and his latest project Square is poised to do the same thing to the credit card processing world.  Square is a pretty simple concept.  They offer credit card processing via your smartphone with a free dongle which they send you in the mail.  You plug the dongle into the headphone jack of your iPhone, iTouch or Android based smartphone, load the Square software, and you have a mobile credit card processing machine.   Terms are very simple when compared to traditional processing options.  There are no monthly fees, no contracts, and the rate is $0.15 + 2.75% for swiped transactions or $0.15 + 3.5% for keyed in transactions.  This compares very favorably to rates available for small businesses anywhere.

Several local Knoxville based businesses are already using Square’s readers and have had positive things to say.  Jessica Hammonds, owner of Organicism Farms has been using a Square reader for about 6 weeks now and says, “The Square reader has been great for us due to its low cost and ease of use.  It allows us to make more sales on our more expensive items like tshirts when customers don’t have enough cash on them to make the purchase at the farmer’s market.”  Similarly, Jason Melvins of Hootnanny, a local Knoxville based rock band has been using the Square reader for merchandise sales at their concerts.  “The Square reader is awesome because it allows us to capture extra sales of merch from our fans who may want to buy something, but doesn’t necessarily have cash.  People today are getting more and more away from cash so it only makes sense for us to some other method of payment available.  For us the Square read is perfect,” says Melvins.

As with any new product, there are a few minor problems that have emerged.  Firstly was Square’s lack of underwriting infrastructure which led to a delay in card readers being shipped to end users.  In a nutshell underwriting is what processors need to cover the risk associated with the credit card charges since ultimately the processor is held liable for any fraudulent charges.  With thousands upon thousands of card readers already shipped out, this translates to millions upon millions of dollar in liability that Square had to source underwriting for before shipping out any additional readers.  As you would imagine this took several months to acquire which led to a lengthy delay when receiving their receivers for the early adapters who signed up for the service last Spring.

Another issue (and perhaps the most important issue) related to the underwriting is the current limits on bank transfers.  After a purchase is made with the Square reader it is automatically deposited in your bank account within the next day or so of the transaction.  The major problem is that Square currently limits the banks transfers to $1000 per week, so  any funds earned in excess of $1,000 per week are held by Square for 30 days (presumably to combat the risk associated with fraudulent charges) before being deposited in your account.

As with any service, there are advantages and disadvantages to Square’s new credit card processing system.  While the cost, accessibility, and ease of use would be attractive to just about any business, the current $1000 per week transfer limit could be a real mitigating factor for some larger businesses.  That being said, if you have a small business that brings in $1000 or less per week and doesn’t currently take credit cards you’re going to be hard pressed to find a better value than a Square reader.

Square is unabashed about its targeting of entrepreneurs, artisans, small service providers, farms, and other small businesses as its initial potential market for customers.  With the value of service that they provide to these small business that might otherwise be unable to process credit cards, it is easy to see that they have hit the nail square on the head.  For more information on Square visit their website at: https://squareup.com/.

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