Square

by Quang Truong

NICHE

Square is a San Francisco based startup founded in 2010 by Jack Dorsey, founder of Twitter. Square enables merchants – typically small businesses and individual contractors – to collect payments by credit card without having to invest in expensive and immobile point of sale terminals. They accomplish this by distributing small credit card readers that can be attached to smart phones, allowing anyone with a square account to collect payments by credit card. Today, Square has over 400 employees, 250,000 vendor-users, and a $3.75 billion valuation.

CEME Square Infographic

CEME Presents: Square, part of the ABCs of Payments Series

 

BUSINESS MODEL

Square offers free credit card readers to any merchant who requests one.Once a merchant has the credit card reader, a smart phone with the Square app and an account, they can begin receiving payments through credit card. Square generates revenue in one of two ways. The typical method is to charge a 2.75% fee on each credit card transaction. Another option is the merchant can pay a flat fee of $275 per month to receive free credit card swipes for the first $250,000 of transactions. If the merchant goes above this amount in a year, they will be charged 2.75% thereafter. Square can also process manually-entered credit cards at the rate of 3.5% + $.15 per transaction. On the cost side, Square must pay interchange fees for the credit cards used in the transaction. Since the average interchange fee for American credit cards is between 1.79% and 1.95%, Square keeps the remaining .8% of transactions leading to a net revenue of approximately $64 million last year. 

VALUE PROPOSITION

Square is an attractive innovation for small business owners for several reasons. First, expands the types of payments a merchant is able to accept. Next, sign up is simple and the device is free for merchants, minimizing startup costs. Lastly, the fact that the device is small and transportable allows highly mobile businesses like food trucks to operate more easily.  Square has also been used by non-profits to get donations.

Square is helpful for consumers too, primarily because it allows them to pay with credit card at more outlets without requiring any sort of change on their part. Recently, Square has taken a bigger focus on developing consumer end products, such as their Square Wallet (formerly Pay with Square). Square Wallet is an app that allows consumers to see what merchants nearby use Square. Consumers who have linked their credit cards can then pay these merchants through the app directly, potentially receiving discounts. Square Wallet hopes to eventually allow consumers to pay “hands-free”, by simply having their smart phones nearby (in their pocket or purse, for example) with the app activated; they simply pay by saying their name to the cashier, who then checks a picture of them and deducts payment automatically.

HARDWARE AND PROTOCOLS

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