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How Square Is Helping Businesses Save on Transaction Fees

Forget clunky credit-card processing systems -- all you need is a smartphone and a new device to cut card-processing expenses.

American consumers conduct 20 billion credit card transactions each year, totaling $1.9 trillion in annual spending--numbers too eye-popping for any merchant to ignore. Yet while shoppers love the convenience of plastic, credit cards are anything but convenient for small businesses. Transaction fees can amount to hundreds or even thousands of dollars each month, dramatically reducing profit margins in the process.

Actually, traditional card processing isn't an ideal option for many types of businesses--food trucks, for example--which translates into any number of missed sales opportunities.

That's why more than 100,000 merchants nationwide sign up with Square each month. The brainchild of Twitter co-founder Jack Dorsey, Square gives small businesses the ability to accept credit and debit card purchases anywhere, anytime via iPhone, iPad or Android smartphone.

Sellers simply input the transaction total and swipe the consumer's credit card through a dongle that plugs into the device's audio jack. Square handles the rest. There's a flat 2.75 percent transaction fee for all swiped Square transactions, with a 3.5 percent fee (plus a 15 cent surcharge) when transactions are keyed in manually. And that's it--there are no additional activation costs, recurring charges, early termination penalties or hidden fees.

Square, based in San Francisco, launched in late 2009, and it's now being used to process more than $1 million in transactions each day. Want to add to that total? Here's how.

Getting Started

  1. Download the free Square app. If you're an iPhone or iPad user, you can get the Square app from Apple's iTunes App Store. If your device runs the Android operating system, visit Google's Android Market. Black-Berry and Windows Phone users are out of luck for the time being, although Square says it's looking to expand to other mobile platforms.
  2. Sign up. Square is available to all users with a U.S.-based bank account, U.S. mailing address and Social Security number. Businesses may also supply their employer identification number. Once registration is complete, Square sends off the free card reader--expect delivery within two weeks.
  3. Link Square to your bank account. After you've provided your account and routing number, Square will make two small deposits and then withdraw the sum of those deposits to verify everything's in working order. Moving forward, Square will automatically initiate the deposit of all funds accepted using the service directly to your account within 24 hours of each transaction.
  4. Start accepting cards. Once your Square account is fully activated and your dongle has arrived, plug it into your smartphone and get down to business. Input the transaction amount and product/service description, then swipe the consumer's card quickly and smoothly, with the black magnetic strip facing the thick end of the reader. Once the transaction is approved, a signature screen will appear; your customer signs with their finger, you input their phone number or e-mail address and the receipt is delivered. In the event that the Square reader is lost or malfunctioning, or if the customer is placing an order via phone, mail or the internet, you can still make Square transactions by manually inputting the credit card information.
  5. Toss your old credit card processing terminal. You don't need it anymore.

Money Goes Mobile
Square isn't the only mobile app transforming how goods and services are bought and sold. Wireless operators, banks, financial service providers and Silicon Valley startups are all introducing solutions designed to transform smartphones into digital wallets, enabling cutting-edge payment options as well as coupon promotions, loyalty programs and related commerce efforts. Here are just some of the companies vying to redefine how you and your customers do business.

Isis, a nationwide mobile commerce network (still in the rollout stage) backed by Verizon Wireless, AT&T and T-Mobile USA, makes point-of-sale transactions possible by tapping a radio microchip-equipped smartphone at a corresponding digital reader unit.

By late this year, Sprint will allow small businesses to add point-of-sale purchases directly to a consumer's monthly wireless bill. In lieu of claiming a cut of each transaction, the carrier may share in revenues resulting from sales of mobile ads and coupons transmitted to subscriber handsets.

With Sprint's Mobile Wallet, customers can make purchases directly from their phones using a universal PIN code. The merchant then bills the customer's existing Visa, MasterCard or Amazon Payment account.

Retailers can accept payments from customers who affix a quarter-size microchip sticker to their wireless device with Bling Nation's

BlingTags. The company supplies a free BlingBox--featuring an RFID reader terminal (or "Blinger"), 100 BlingTags and marketing materials. The Blinger plugs in to any electrical outlet at the point of sale, requiring no additional integration with the existing POS system.

Chicago-based writer Jason Ankeny is the executive editor of Fiercemobile content, a daily electronic newsletter dedicated to mobile media, applications and marketing.

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This article was originally published in the June 2011 print edition of Entrepreneur's StartUps with the headline: It's Hip to Be Square.

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