Square: All Hype and Little Value for Small Business

October 3, 2010

October 3, 2010

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Many people have been talking and asking about Square, the new gadget coming from Tom Dorsey, the prolific founder of Twitter. The basic idea is to make the acceptance of credit cards universally available for everyone individuals, businesses, etc.–provided they have an iPhone and Square’s little swiper piece (you plug it in the iPhone to […]

46 Seconds to Discover Thousands of Wasted Dollars in your Business.

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Many people have been talking and asking about Square, the new gadget coming from Tom Dorsey, the prolific founder of Twitter. The basic idea is to make the acceptance of credit cards universally available for everyone individuals, businesses, etc.–provided they have an iPhone and Square’s little swiper piece (you plug it in the iPhone to facilitate the swiping of credit cards).  Cool idea, huh? Here are some questions to ponder:

I welcome discussion and addition to these questions. Having read a ton about Square, this is purely speculative. Since it does not come out until the summer, only test users have actually put it into use.

1) Is Square accomplishing something new?

Yes and no, but mostly no. Accepting credit cards via iPhone has been around for a while. In fact, FeeFighters has a free iPhone app that does virtually the same thing as Square. The difference: with FeeFighters (and many  similar apps) there is a different credit card processor involved on the back end, but with Square, they act as both gateway and processor.  Another difference is the swiping feature–most other apps require keying in the number.

Square also includes some nifty toys like photo verification (for identity theft purposes), the ability to swipe cards, and email receipts with lots of information like geographic location of transaction.

2) Is Square a good idea for my small business?

It depends on your size, but mostly no. If you are a bicycle messenger, or some other occupation with very low volume of credit card revenue and also need mobility–then Square may be worth it. Rates for credit card processing fees vary by revenue from credit card transactions. The higher the volume, the lower the fees (generally). Square charges 3-3.5% per transaction which is absolutely not worth it if your business has high volume.

3) What’s the catch?

Square is still deciding what to charge for its services. Some say both the hardware and software will be free, while others point to a $1 download fee for the app. This isn’t where Square will potentially make its money: the bulk will be that 3-3.5% processing fee. Like I mentioned before, for small businesses will little revenue, then it’s not bad. For example, Paypal’s processing fees for monthly credit card revenues under $3,000 are 2.9%+0.30 (per transaction). So in reality, you could download the FeeFighters iPhone app (free) and use Paypal as your processor for less. However, if your monthly revenue is really high, then processing rates can be as low as Interchange+0.10+0.05 (that’s just an estimate). Translation: 2%+$0.20 per transaction.  That’s a huge difference from 3.5% flat fee.Learn more about average fees here.

4) What are the pros and cons?

Pros Cons Conclusion:
Mobility Able to be used anywhere. Not if you lose that swiper chip. Keying in apps already exist. Swiping is cool, but not losing the add on piece.
Price Flat fee. It’s really high! If you’re low volume and an infrequent user, you’re paying for convenience. Otherwise go another route.
Features Ability to swipe, email receipts, photo ID, signing on the screen, geographic markers You’re paying a lot for these! If you really like the features and are willing to pay a premium, all power to you.

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