There’s a War to Replace Your Wallet… and You May Not Even Know it

You may have seen someone walk into Starbucks and not take out a credit card or even their Starbucks card -“ just their smart phone -“ and get their Venti latte with a double shot without obviously paying for it.

On the other hand, your baby sitter may have said that it was OK if you were short of cash after your night out because she takes credit cards.

Both of those sales rely on an evolving process called mobile payments and right now mobile payment providers are popping up everywhere.

Big biz are early adopters
Major retailers are, for the most part, relying on you downloading an app for their particular payment system to your smart phone. Starbucks, as just one example, has developed apps for both iPhones and Androids and you can use them at thousands of Starbucks outlets, including more than 1,000 embedded within Target stores. In 2011 more than 26 million mobile transactions occurred in those stores. The apps link to your Starbucks stored-value loyalty card and it is debited for the amount of the purchase.

Recently online payment service PayPal, search engine giant Google and financial software provider Intuit have entered the fray, along with many others, linking either a credit card or other payment source to their downloadable apps.

A viable option for small biz
The company they’re chasing is the one responsible for your baby sitter’s ability to let you charge her fee using a small square credit card reader that pops into the headphone socket on her smart phone. This particular reader comes from a company called, of all things, Square.

Jack Dorsey, CEO of Square and founder of Twitter.

Square is the product of a guy named Jack Dorsey. If you tend to think in 140 characters or less you may have heard of his other startup company -“ Twitter. He still serves it as executive chairman while he’s running Square.

Square was born because Dorsey’s cofounder lost a $2,000 sale because he couldn’t take credit cards. Dorsey decided to fix that. That was two years ago.

Now, some two million merchants are processing more than $6 billion worth of sales a year via their smartphones. The San Francisco-based company is valued between $2 billion and $4 billion. Its website is

Lindsay Wiese is a spokeswoman with Square (they seem to eschew titles). She says that anyone with an iPhone, an iPad or an Android device can download the enabling application for free, attach the equally free reader, and let customers charge away.

“All of your transactions are deposited directly into your bank account within 24 hours,” Wiese explains. “It’s transforming the way small companies, such as food trucks, do business. It’s for people who are really on the move, who weren’t able to accept credit card payments in the past.”

If anyone has security issues, and there are those with questions, Wiese responds, “With Square everything is so much more secure. None of the information is stored on the phone; it goes directly to our secure server, where it’s encrypted,” before being sent on to the various credit card companies that actually handle the payments.

To facilitate this new ability of your baby sitter and other smaller merchants to receive payments wherever they are, Square charges a processing fee of 2.75 percent. This is a fraction of a point higher than some competitors but, claim many dissatisfied users of those competitors, it’s often a percentage point or more lower than the competition as there can be additional fees tacked on for a variety of reasons.

Square prides itself on its transparency. “There’s no monthly fee,” responds Wiese. “So if you have a seasonal business or only need to accept credit cards once every few months, you’re only paying for Square when you’re using it. There are no hidden fees. Just a 2.75 percent transaction fee.”

The Square credit card reader in action.

That compares with the merchant processing fees normally charged by the credit card companies and banks that can be as high as 4-plus percent in addition to the costs of the card-swiping equipment for a bricks and mortar retailer, which ride on top of monthly maintenance fees. Square’s promise to pass your payments to your bank account within 24 hours is also at variance with some of their competition which, again according to their users, will limit the amount they pay out in a given period while holding the remainder in escrow.

While not a barrier to your baby sitter, fixed equipment costs can mount up for small retailers and other merchants. Square has an app for that as well.

A cash register system alternative
“Square Register, our app for iPad, allows you to track inventory, set up loyalty programs -“ it’s really more for brick-and-mortar businesses,” says Wiese. The loyalty program “is like a punch card, but you don’t need paper -“ we try to be a paperless company,” she interjects. “So when you pay with Square at one of these businesses you either get a virtual electronic punch or the merchant can provide a different reward -“ say, 10 percent off for first-time visitors.”

The Square Register app turns an iPad into a multifunction cash-management terminal for small business.

The iPad app is designed to do a lot of things that existing point-of-sale registers and back-end accounting and inventory systems currently provide but that can often be expensive to set up and maintain. The app can turn the iPad into a picture gallery of the merchant’s inventory. When a customer makes a purchase, photos of each item show up with their associated price on a separate section of the screen. There can be provisions for discounts on different items, different amounts of sales tax, loyalty points -“ whatever the merchant decides to incorporate. At the end of the transaction the customer receives a copy on their smartphone as a receipt.

‘Put it on my tab’
On the consumer side, Square has an app for that as well. Wiese continues, “Pay with Square allows customers to pay with their phone. It’s free. You download it to your iPhone or Android device and put in your credit card information. When you go to a shop or mobile vendor that accepts Pay with Square, walk up to the counter and say ‘put it on my tab!’ The vendor sees the name and a photo of the customer on their iPad so they can verify that everything’s OK, the charge goes through and the customer gets an electronic receipt on their phone.”

A receipt for a purchase with Pay by Square.

Wiese is obviously enthusiastic about the new app, “It’s great for the merchant because they get to know their regular customers and can put a name to a face. It’s completely seamless. You don’t even have to take out your phone. It’s really a cool experience. I just love looking at people’s faces when they go ‘oh my gosh! this just works!'”

Pay with Square also allows for customers to pay over the phone merchants with whom they’ve established a relationship.

Where is Square, at least, going next? “We’re constantly getting feedback from businesses and adding new features because of it. We’re definitely building out our Register.”

One of the newer features should appeal to small franchisers or to companies with a mobile sales force. “A customer can accept multiple payments from different areas for the same account. It can then attribute those sales in the Register program.”

Election campaign contributions -“ and Girl Scouts
One thing this feature will do is enable political campaign contributions at rallies and candidate meet-n-greets. “When a voter makes a contribution with Square their financial information is secure, and the process is designed to comply with campaign contribution regulations,” Wiese assures.

So the mobile payment business is growing exponentially it seems. We can hardly wait until next March when we can charge our Thin Mints right at our front door.

Wiese has the final word: “It just makes paying for something fun again.”