Square: Making it Easy for Small Businesses to Accept Credit Cards

Vance Harvey admits that even in a strong economic environment, it’s hard to run a profitable helicopter touring business. But he and his brother Vince opened Safari Choppers in St. Petersburg, Fla., last November and are doing just that, thanks in large part from being able to accept credit-card payments on the spot.

“Helicopter tour companies pop up all over the place, but they often close right after they open, because it’s very expensive and difficult to talk people into parting with their money to fly in a helicopter,” said Harvey. When the company does land a customer, he estimated close to 80% of them pay for the costs with a credit card.

For a growing number of small business owners like Harvey, the obstacles to accepting credit cards just got a lot lower thanks to Square, which was created in 2009 and led by Jack Dorsey, a co-founder of Twitter. The San Francisco-based company allows anyone to accept credit cards anywhere with a credit card reader that plugs into iPhone, iPad or Android phone.

”Square’s our best friend,” said Harvey, who provides each of his five employees with a device and then sends them out into the field to drum up business. “I can’t express the convenience of everyone in my company having a credit card machine in their pocket. All the money going into my account makes me a happy camper.”

Square is quickly growing its user base among small, independent businesses. Before advanced mobile technology like this, it was often difficult for small business owners to get a point-of-sale credit card system. The process took time: it required a credit check, paperwork and hardware and software installation. Square requires none of those, the device is free, and quick to set up. The company charges a flat 2.75% per transaction fee—a rate Square said is competitive and more transparent than other providers.

The ability to accept credit cards from any place can have big effects for individual businesses and have large-scale ripple effects throughout the entire economy.

For its part, Square aims to help small businesses compete in industries where they’ve lost ground due to the economies of scale and technology advantages traditionally enjoyed by larger firms. “With Square, you can have 75% of the quality that a Starbucks or Macy’s can have and run it off iPad and for free,” said Square COO Keith Rabois. “We’re trying to bring the big business advantages to local businesses.”

Square is just one of many companies that are helping small businesses accept credit cards to capture a larger market. Rabois said that 8.2 million businesses in the U.S. accept credit cards, while 26 million don’t – a huge potential market of eager adopters.

Intuit, Verifone, PayPal, Google Wallet for Android, Visa, and American Express are all at one stage or another in producing similar mobile payments services.

The business impact of accepting credit cards can be significant. “If you want to grow your business, the first step is to start accepting credit cards. That can provide anywhere between 15% to 50% top line growth,” said Rabois.

Chris Sommers can attest to that. The co-founder of Pi Pizzeria, which operates two pizza trucks and four bricks and mortar stores in St. Louis and Washington, D.C., estimated he gets about a 30% top-line revenue bump just by being able to accept credit cards on his food trucks.

About half of all small-business owners accept credit cards for payment, according to a 2001 study of small employers with between two and 249 employees by the National Federation of Independent Businesses (NFIB). Of those that accepted cards, 79% said they do so because it enlarges the market by allowing customers to pay from a distance more easily, and 69% said they do so because accepting cards improves cash flow.

In most industries, the rationale for accepting credit cards has been clear for some time. Now the barriers are just less intimidating. “If small businesses were technologically inhibited before, then this is going to be a very appealing technology for them. The more options they have to accept payment s is good for them,” said NFIB spokesperson Kevan Chapman.

With any new technology, particularly one that debits financial accounts wirelessly, there is bound to be some security concerns among first-time users. And some industry competitors have declared that the Square card reader is “shockingly simple” for a criminal to write an application that would steal credit card information from users. In an open letter released in March from Douglas Bergeron, the CEO of Verifone, an entrenched player in the electronic payment industry that offers a competitive service called PAYware Mobile, wrote, “In less than an hour, any reasonably skilled programmer can write an application that will ‘skim’ – or steal – a consumer's financial and personal information right off the card utilizing an easily obtained Square card reader.”

But Square insists the system is secure. CEO Dorsey responded in a letter calling Verifone's allegations “not a fair or accurate claim and it overlooks all of the protections already built into your credit card.” In a public statement in April, Rabois said that “Square complies with all current industry standards, and we are committed to meeting or exceeding industry guidelines as they evolve.”

Harvey, for one, said he hasn’t had trouble explaining the product, or why it’s secure to consumers handing over their plastic. “It’s never come up. If it did, I would tell them I’ve been using it for the past six months. It’s all we use and we run a lot of cards through machine and no complaints yet.”

Already, the next step in mobile payments is upon small businesses like Pi Pizzeria, which is in a pilot test of the Square card case product. With that technology, customers can set up a tab and make an order before they even visit the Pi food truck. It removes the point of sale transaction from the equation entirely.

By allowing customers to start a tab at any time from their phone, the Square card case is designed to build relationships between customers and their favorite independent businesses, because they can store information and link their bank account directly to those merchants. Perhaps even more importantly, it also saves Sommers’ food truck workers 30 seconds per customer. “When you’re trying to serve people at lunch in a rush, that’s an incredible amount of time,” he said.