Until and unless Apple succeeds in popularizing a completely wireless payment system for iOS devices — effectively turning them into radio-based credit cards — Square, Inc.’s Square Credit Card Reader (Free*) represents the future of digital payments for iPhones, iPod touches, and iPads. Founded in 2009, Square appeared from nowhere to challenge existing cell phone-based credit card readers with a substantially different model: reader hardware and software that would be simple and cheap enough to give away, subsidized by a per-transaction fee of 15 cents plus 2.75% to 3.5% depending on whether the card data was physically swiped or entered into the device with a keyboard. Square released its first-generation hardware and software in 2010, leading to such demand that it was unable to fulfill orders for months at a time. Now the company has gotten its act together with a second-generation version of the Square Credit Card Reader and version 1.5 of its free Square iOS app, which works with all iPhones, iPod touches, and iPads. As discussed below, we’re substantially impressed by what the small company has accomplished.
Made from white glossy plastic with a metal 3.5mm headphone plug at the bottom and a credit card magnetic strip-sized slot running through its center, the second-generation Square Credit Card Reader is slightly smaller than the original version, more reliable at swiping cards, and brighter white in color—in short, it looks almost exactly like something Apple would have made. Measuring roughly 1.6” from top to bottom, 0.9” from left to right, and 0.4” deep, the new Square Reader has a redesigned headphone plug that is compatible with any iPhone, iPod touch, or iPad case you can imagine; the second-generation model now works flawlessly with the iPhone 4, which due to its steel frame frame had problems with the first-generation Square accessory. It consumes almost no power and can be attached or detached at any time from your device.
The only design touch that doesn’t feel totally Apple-like is a set of two square holes on the unit’s bottom-right corner, which can be used to insert the thin fabric end of a wriststrap holder if you self-supply one; Square doesn’t include a wriststrap or other way to actually protect or carry the accessory around. This DIY approach is arguably the accessory’s only design weakness—unlike credit card readers released by companies such as Mophie, which are comparatively huge and integrated into iPhone-specific cases, you have to be responsible for keeping this add-on someplace safe when it’s not in use.
Square’s strengths offset that weakness by a factor of 5 to 1. Start with the lack of any sign-up, set-up, or monthly recurring fee, which other credit card reader providers assess in different ways: Mophie’s Marketplace accessory, which is sold in versions separately designed for the iPhone 3G/3GS and iPhone 4, starts at $80 for a case and adds $13 per month for Intuit GoPayment service. Square has none of this; it will actually ship you a Reader for free when you download the app and sign up for the free account, and then gladly ship additional Readers to friends you contact using the app. Each Reader it ships arrives within less than a week, and comes with a “Pay with Square” sticker that can be placed on a store, restaurant, or food truck window if you want to use it. The Square Reader can also be used on non-iOS devices, including Android phones, if you ever make the switch.
Then there’s the per-transaction fee, which has been streamlined to a simple 2.75% for swiped transactions, versus 3.5% plus 15 cents for manually entered transactions—Visa, MasterCard, American Express, and Discover are all supported at the same rate. These numbers are seemingly higher than Intuit’s GoPayment, which charges 1.7% for swiped transactions and 2.7% for manually entered ones, plus a 30 cent fee per transaction, but the reality of which is better for your needs over the long-term is a little more complex.
You’ll be charged more by Intuit in per-transaction fees for any swiped transaction with a $28 or lower amount, and more by Square at $29 and up. On a $100 transaction, you’ll pay Square 75 cents more than Intuit; on a $500 transaction, you’ll pay nearly $5 more. For manually entered transactions, Square has an edge over Intuit up until the $20 price point, at which Intuit’s fee is 84 cents and Square’s is 85. You’ll pay Square 65 cents more than Intuit per $100 transaction, and you’ll pay a little less than $4 more per $500 transaction. Except under certain circumstances: Intuit charges higher fees for American Express and JCB cards, as well as for business cards, foreign cards, and some others, boosting the rate to 3.7% plus 34 cents.
Once you factor in the cost of the Intuit monthly service – $13 – and the $80 Mophie case, you can figure out how many of your most common transactions you’ll need to go through on a monthly basis before Intuit’s solution breaks even with Square’s. It goes without saying that users who make few transactions per month, at relatively low dollar values—$20-$30 or less—will be far better off with Square, whereas higher-volume, higher-transaction price users may find Mophie’s and Intuit’s option more appealing.
Another area in which Square has its rivals beat is device compatbility. The Square Reader doesn’t just plug into iPhones, iPod touches, and iPads with ease; the company’s iOS app works equally well with all of them. There are separate UIs for the 3.5” and 9.7” displays, each spectacularly straightforward. The iPhone/iPod touch app devotes half of the portrait mode screen to a large numeric keyboard for card number and price entry, with the other half displaying the entered price, the swiped credit card number’s last four digits, and optional text and photo details for the item being purchased. When the transaction’s put through, the screen shifts to landscape orientation to provide a signature pad, then efficiently sends SMS and/or e-mail format receipts to both the seller and the purchaser.
On the iPad, most of the interface is the same, only with more open space and an additional feature or two. The keyboard on the bottom can optionally be swapped with a list of commonly sold items maintained in an in-app library of items, each accessible with a colored and briefly labeled square icon. You can set each item to include or omit sales tax, as well as including a set photo and/or description for the item.
Other than that, the iPad side of app processes transactions very similarly to the iPhone/iPod touch version, placing the signature pad on the vertical screen orientation rather than requiring the device to be rotated.
There are so many well-implemented elements in the transaction process that we won’t devote exhaustive space to discussing all of them, but here’s a brief list. First, the process of setting Square up is beautifully structured so that you can begin receiving payments even before having the hardware or associating your Square account with a specific bank account. Download the app—a quick 13.5MB transfer—and you can begin accepting keyed-in payments immediately. Receive the reader and you can accept swiped payments. Give the app your bank account routing information, and within 1-3 days, you’ll be able to have funds transfer directly there for no additional fee; until then, it’s held in your Square account. Contrast this with the classic “buy the hardware first, set up the account in its entirety first, and then start accepting transactions” model and you’ll understand why Square can get new users in a minute.
Fraud concerns are addressed as well as could be hoped for in the absence of requiring every user to sign up for a classical merchant account. In addition to an initial credit check that’s performed when you sign up for your Square account, Square requires location data and an active Internet connection for each transaction, recording where each purchase physically took place, and only allowing transactions when your iOS device is on 3G or Wi-Fi with current access to the company’s processing server. The device doesn’t save credit card data to the device; it only holds it for as long as is necessary to consummate the transaction. But on the server end, it recognizes past credit card numbers associated with Square accounts, and actually acknowledges the account holders by name and image. The receipts it sends are GPS tagged to the specific location of the transaction, along with a date, time, and number of visits stamp. Higher transaction fees for manually entered transactions are there to offset the higher potential for fraud.
The only really noteworthy additional anti-fraud protection is an initial cap on the per-week amount from transactions that Square will transfer into your bank account. “There are no limits on transaction size or number of transactions,” notes the company.