Last March, we mentioned in a Retail Paradox Weekly article that Twitter creator Jack Dorsey had formed a new startup, Square, to offer a little square credit card swipe device for the iPhone, Android, and other smart mobile devices, plus the enabling application and the cloud-based service to handle the transactions. In December 2009, CNN called Square “smartphone PayPal for credit cards “. Although CNN focused on how individual sellers could use the payment capability, it is more focused towards smaller merchants. The company has gotten a lot of recent attention when Walmart announced in late October that it would start selling the devices (which are already available at BestBuy, Target, and many Apple stores). Square’s target customers are small business owners who can’t afford to invest in credit card terminals. Some 800,000 devices have been shipped to merchants thus far, according to Bloomberg. Square’s Chief Operating Officer Kaith Rabois recently revealed that the company is now processing more than $2 billion in credit and debit card payments per year, equaling about 10% of the reach of the Visa and Mastercard market. The COO said that Square gives businesses one simple and easy to use product without the fees, and limitations associated with most payments product.

Theory Put To Practice

I had a chance to see the theory behind Square put into practice. My daughter and son-in-law, Meghan & Brendon Sullivan, planned toopen a new BBQ restaurant in Auburn, CA in mid-November. Meghan had been attempting to establish a merchant account through their bank, and found the process to be a “major hassle “, but the killer was the fee structure. “I had two big issues with the merchant banks, but the biggest one was all the fees that they charge “, said Meghan. “The second one was that they wanted to check our personal credit, even though we had established a bank account for the business. We talked to five different banks, and got the same routine each time. ” How much did the fees add up to? “Over 4.5% “, according to Meghan, “and if the customer were to use American Express, it would be even more. “

At the mention of Square by her ol’ man, she set off in a new direction, signing onto Square’s website to establish an account. Explained the young entrepreneur, “the first thing I did was to sign up online; when you sign up, Square sends you a free device. The device works on Android and Apple devices, so I went to BestBuy and as luck would have it a Square salesperson was at the store. The rep helped me find the right tablet that would be compatible. There was a good one on sale for $379 (an Android-based Motorola Xoom tablet), and I also bought a spare Square device for an additional $9 as a backup. “

As to activating the Square on the tablet, it was literally a snap. “You plug the Square into whatever device you’re going to use, ” said the restauranteur, “and then the device will ask if you want to download the software for the Square – you accept. When that’s finished you sign onto the account that you’ve already established, and you’re done – it’s up and going. “

Consumerized Computing Helps Build the Brand

In a few days at the restaurant’s Grand Opening, the Bam Dazy BBQ was taking credit and debit cards from happy new customers, and it actually helped to establish the restaurant’s “cool ” factor. “I was afraid that people were going to hate it, ” explained Meghan, “because it’s a wireless device, not fixed to a phone line. I was worried that with all the news about credit card fraud, that people would react to doing it all wirelessly. But the response has been the opposite – people love it. They are fascinated with it, and want to watch when we enter the information. I’ve had more people ask about it than about our BBQ recipes! “

Just as setting up the account and enabling the device proved to be easy, so is the settlement process. At the end of the business day, the system will send a summary, itemizing the transactions, and provide a summary balance. Usually at the end of the next business day, Square deposits an amount into the merchant’s bank account equaling the prior day’s total less the fee, “2.75% “, according to Meghan.

On Opening Day, it was fun for me (proud father, nervous technology geek) to see what a hit the Square/Motorola set was. Customers loved the idea of signing the touchscreen device using their finger as the “pen “, and even the merchant next door (A Harley Davidson motorcycle, parts & accessories dealer) came by to scope it out as a possible alternative to his more traditional countertop credit/debit card device. Somehow the idea of using something so “modern ” fit right into the notion of two young entrepreneurs starting their own business. Customers get the option to either have their receipt texted to their phones, or e-mailed ( “most people just wanted a register receipt “), but in any case Square sends an e-mail notification to the business e-mail address, showing the transaction detail.

“It’s ridiculous how easy it is “, concluded Meghan. “We plan to use this when we cater events – it’s opens more doors for us because it gives our customers more options (besides cash or check). “