The Square takes a swipe at taming transaction fees

Written on January 13, 2012 – 1:22 am | by Stephanie Brodribb

Urban Bean manager Liz Abene started hunting for a new way to process card payments after the coffee shop’s transaction fees skyrocketed. It was costing $60 a month, she said, just to have the credit card equipment on the counter.

Her solution: the small, white, cube-shaped card reader called Square.

Resembling an oversized piece of Chiclets gum, the Square is one of several new approaches that offer small retailers alternatives to complete reliance on traditional payment providers such as Visa, MasterCard and American Express.

The companies — including eBay’s PayPal, ProPay and SparkBase — are part of a brewing battle over how we pay for things in person. The volume of mobile card payments surged by more than half in 2011 to $86.1 billion, according to tech researcher Gartner Inc., as small businesses look for ways to get around transaction fees for card payments.

Eric Grover, a payments consultant with Intrepid Ventures in Minden, Nev., said the potential market is “huge.” Still, he sees Square, which processes payments through a subsidiary of J.P. Morgan Chase, as an extension of the existing system rather than a disruption.

“They’re extending the existing system to potentially millions of very small merchants — piano teachers, plumbers, electricians … somebody who in the past would take cash or check,” Grover said.

The Square card reader plugs into the headphone jacks on most smartphones and turns them into card swipers, enabling individuals or businesses to accept card payments without the complications of a merchant account with a bank and costly special equipment.

Square sends free credit card readers to people who sign up. Target also sells them for $9.99.

Users pay 2.75 percent per transaction. That isn’t a cheap rate, but it’s the only fee users pay, the company says, while traditional payment systems can charge activation fees, monthly or annual fees, gateway fees and hardware rental.

Abene figures Urban Bean is saving about $400 a month using Square at its coffee shop on Lyndale in Minneapolis. But she hasn’t totally bypassed the card companies that irritated her, since Urban Bean must be hooked into major networks such as Visa and MasterCard for many of her customers’ cards to work.

Perfect Business!