Device Allows Smartphones to Process Card Transactions

Customers sign right on your phone!


Simply plug in and swipe!

Two months after opening a food truck business in Raleigh, Mike Stenke realized an inconvenient truth about his customers: Many of them did not carry cash.

Figuring his inability to accept debit and credit cards was costing him sales, Stenke went looking for a solution that would fit his needs.

“It’s got to be in a truck and I was on a really tight budget,” said Stenke, 41, owner of the Klausie’s Pizza Truck. “I also wanted to get going fast because I had a couple of big events coming up.”

Instead of turning to his bank, Stenke signed up for Square, a 1-year-old service that enables him to attach a credit card reader to his iPhone and run customers’ cards on the spot.

The service, which emerged from beta testing in fall 2010, is an increasingly popular payment method for small-business owners in the Triangle and around the country.

Customers sign right on your phone!

Square has shipped 500,000 of the postage stamp-size card readers that can be plugged into either an iPhone or an Android-powered smartphone.

The Triangle alone has more than 1,300 Square users, said Lindsay Wiese, a spokeswoman for the San Francisco startup.

The company, whose CEO, Jack Dorsey, was one of the founders of Twitter, raised $100 million in venture capital funding in June.

Among the first to sign up for Square in Raleigh was Jason DiMambro, who has owned the network consulting business marvel Internetworking for eight years.

DiMambro, 36, doesn’t have an office and works with a lot of startup companies. Before Square, he would have customers write him a check or would bill them and wait for the payment to arrive.

“And in some cases I didn’t get paid,” he said. “It’s nice that I get paid instantly.”

How much it costs

Square’s card-reader and the application that users download to their smartphones are both free. The only cost for the service is a 2.75 percent fee for every transaction processed.

The charge is 3.5 percent plus 15 cents if the physical card isn’t present and the credit card number has to be entered manually.

Square accepts most major credit cards, including Visa, MasterCard and American Express. Customers sign a digital receipt on the smartphone screen using their fingers and have the option of having the receipt emailed or texted to their own phones.

A retailer links the Square account to his or her bank account, and most transactions are deposited within 24 hours.

The service’s simplicity makes it an object of curiosity among first-time customers.

“They think it’s the coolest thing ever,” DiMambro said.

Stenke said he initially wondered whether customers would have security concerns about running their credit cards on the device. But he said the fact that customers are instantly sent a digital receipt of the transaction seems to alleviate such fears.

Most retailers now using Square were previously either cash-only, used the online service PayPal or paid for a service through their bank.

Watching it grow

Square has plans to expand outside the United States next year, and the service’s growth makes it a closely watched player in the emerging market of mobile payment transactions.

A number of new and traditional companies are scrambling to prepare for a future where customers use their smartphones to make purchases.

Jeff Clark, president of Southern Community Bank and Trust, said he doesn’t view Square as a threat. He said the customers that Square is signing up don’t represent a significant amount of business for the Winston-Salem bank, which has 22 branches in North Carolina.

“The regular business that has a storefront is going to use our technology that we’re all used to,” Clark said. “I think the Square technology is going to be for the smaller micro-type businesses.”

Southern Community offers smaller retailers a credit card payment service through a vender, Atlantic Merchant Services. A retailer rents or leases card-reading equipment, which can cost $250 to $750, and then also pays a monthly service fee and a percentage fee on each transaction.

The fees are higher for retailers that only do a small number of monthly credit card transactions. Clark said monthly fees are in the $50 range, and the transaction fee can range from less than 1 percent to 2.5 percent.

“It all comes down to monthly fees, discounts and then service,” he said. “We sell the service piece of it as much as anything.”

If their credit card processing system goes down, Clark said, retailers want to know they have someone to call to get it up and running again quickly.

Convenience counts

Most Square users say they have been impressed with both the service’s reliability and the responsiveness of the company in dealing with problems that arise.

For businesses such as Olly Oxen, a clothing retailer in Raleigh, Square is as much about convenience as it is boosting sales. Charlotte Guice, 24, the owner, sells at tailgates and other events on college campuses.

She used PayPal and wrote down credit card numbers on a form to enter them later. With Square, Guice doesn’t have to worry about writing down a credit card number wrong.

And the campus representatives she uses can link their smartphones to her Square account so the payments go directly into her bank account.

“It made just a huge difference for my business because a lot of my sales happen out in public,” Guice said. “People want that fast, quick way to pay and they don’t always have cash with them.”