In terms of technology, the Square register is a simply a magnetic card reader that communicates credit card information to a smartphone through the 3.5mm audio jack.Merchants can also attach the same hardware to an iPad, along with installing a specific iPad app, to unlock a few more features.Once the credit card information is in the received, Square routes the information to Paymentech, where it is then re-routed to the credit card companies and the customer’s issuing bank. JP Morgan Chase is Square’s acquiring bank. Credit card information is never stored by the merchant’s phone for security reasons. Square currently accepts any card with a Visa, MasterCard, American Express or Discover logo; the company has also started a “Square gift certificate” which will be accepted by the device. Square also allows licensed healthcare providers and pharmacies to accept HSA cards.

 Merchant’s Square accounts are linked to their bank accounts and deposits are made daily. Merchants are still responsible for chargebacks (their bank account debited if a chargeback claim is started) though Square promises to help merchants with chargeback claims. Square uses a daily discounting method, meaning that interchange fees are deducted from merchant’s accounts prior to deposit, rather than bundled up and charged once a month; this decreases the cash flow going to the merchant.


As of September 2012, the company was valued at $3.25 billion.


Square’s biggest weakness is the lack of intellectual property privileges for their device. Already, companies like PayPal, Intuit and Verifone have created their own versions of the card reader. Eventbrite and Groupon may also be attempting card readers soon. Another issue is security concerns for the device itself. Verifone has alleged that it would be possible to steal credit card information from customers. For instance, a hacker could backwards engineer the Square App and then steal information each time a person swipes their card. Square has encountered further criticism from merchants for its fund holding policy. Lastly, Square might face some challenges in the horizon if consumers decide to switch to EMV or NFC cards. The great innovation of Square is that it lets anyone accept credit cards. If traditional credit cards are phased out for swipe-less payment methods, the company will have to adapt its hardware to suit this. 

#2 in the Series ABCs of Payments. The ABCs of Payments will examine a new company or innovation in mobile payments each week.

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1 comment on this post.
  1. Temitayo:

    How are we sure the reader being very portable cannot be read by third parties or hacked by nefarious elements which may lead to theft of identity by the hackers?
    I am not saying this is not good but their must be a very good guarantee of one”s card details and personal information. the tech world is weird and one must exercise extra caution when using credit cards anywhere.

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