Square changes the shape of retail payments?
Square, a new payments device due to be launched in 2010, is causing quite a stir, according to Christine Bardwell, Ovum retail technology analyst
“Many reports claim the technology will revolutionise the way we make payments,” said Bardwell. “Co-founded by the creator of Twitter, Jack Dorsey, the concept of Square is that it allows anybody to be a merchant.
“Square box is a magnetic card reader, which plugs into the headset or microphone socket of the iPhone or iPod touch. On swiping a credit card through the reader, the data is converted into an audio signal, which can be read by the Square software application installed on the iPhone. Buyers sign the mobile phone screen with their finger, the payment is processed, and then, given that the buyer has entered personal details and an email address, they receive an SMS and an email with confirmation of payment and receipt.
“Square is also developing versions for Android and Blackberry phones but hopes to enable the system to work with any device than can run the software and has a microphone socket. The hardware is free and the software will be available from $1. Ovum expects this price to be dependant on usage patterns and that retailers of size will be required to pay a slightly higher rate. Even so, with all costs (including the mobile device) taken into account, the system will still be significantly cheaper than rival payments terminals.”
Security is important adoption factor
“Should the likes of payments device vendors Ingenico or Hypercom be worried about losing market share to Square?” Bardwell asked. “Not yet. The device will not be as popular in the European market because Square uses the magnetic strip rather than the chip in the card.
“Payment by swiping the magnetic strip on the back of credit or debit cards is being phased out in Europe because the strip can be easily copied. As such, consumers are more than familiar with paying using portable handheld chip and PIN payment devices. Even takeaway delivery drivers are often geared up with wireless versions.
“However, in the US market most payments are still made by swiping the card and signing on a terminal. Whereas the uptake will be minimal in Europe because of security issues, US retailers will not be adding a further security risk by using the system. Instead, businesses could realise cost savings. Add to this the brand perception if a fashion store, for example, could take payments from customers on the shop floor using an iPod touch and the potential in the US market is huge.”
Possible mobile internet potential
The analyst added: “Generally speaking though, Ovum sees the most potential for Square around consumer use of the device for purchasing goods over mobile internet. M-commerce uptake is growing quickly as smartphones become commonplace and retailers design websites rendered for browsing from mobiles.
“Still, a barrier exists – payment security. Consumers are wary of typing card details into mobile handsets in case the data is stored on the hardware and the phone is stolen. Also, typing out card details into a mobile handset can be cumbersome so consumers may choose to wait until they are in front of their PC instead. Square overcomes the security issue by using encrypted protocols to send transaction information over either a 3G or Wi-Fi connection ensuring that the data is never stored on the handset.
Square is in the very early stages of development. The idea was formed in February 2009 and in under a year, the product is being trialled in a number of US stores and establishments. As the system takes off in the US market, and considering the price it surely will, the founders would be missing a trick if they did not evolve the box into a chip and PIN device. Is the technology revolutionary? No. However, Square has great long-term potential.”
Christine Bardwell is Retail technology analyst, Ovum