How Square and Intuit Are Killing Off the Credit Card Terminal
Americans conduct 20 billion credit card transactions each year, translating to $1.9 trillion in annual spending. Consumers love the convenience and ease of credit cards, but plastic is anything but fantastic for many small businesses: As transaction fees pile up, profit margins shrink—retailers can even lose money on some low-value sales. Of course, conventional credit card processing solutions aren’t even a viable option for businesses without fixed brick-and-mortar locations (e.g., food trucks and craft fair artisans), costing them any number of opportunities to generate income and nurture a customer base.
All of which explains why Square now processes more than $4 million in payments each day. The startup—launched by Twitter co-founder Jack Dorsey in late 2009—enables SMBs to accept credit and debit card purchases anywhere and anytime using their iOS or Android smartphones, swiping the customer’s card through a small dongle that plugs into the mobile device’s audio input jack. Square levies a flat 2.75 percent fee for all swiped transactions, vowing no additional activation costs, recurring charges, early termination penalties or hidden fees. In the past year alone Square has shipped more than half a million dongles, also signing a distribution deal with Apple, whose iPhone generates 45 percent of all Square transactions. (Apple’s iPad yields 21 percent and the iPod Touch is responsible for 3 percent—phones running Google’s Android operating system account for the remaining 31 percent.)
Square doesn’t simply offer SMBs a means to process credit card transactions—its solution also opens up new possibilities to interact with consumers via the mobile channel. Earlier this year, the firm introduced Square Register, a point-of-sale application for the iPad enabling SMBs to manage daily transactions, update pricing, generate digital receipts, and maintain virtual storefronts. The Register app’s location-based Directory feature allows customers to explore nearby merchants, while Menus gives retailers and restaurants the flexibility to promote daily specials, current prices and trending items in real time. As Square continues to grow and evolve, look for it to continue introducing new mobile marketing features that further transform the relationship between small businesses and consumers—payments are just the tip of the iceberg.
Square has gotten so big so fast not simply because it’s an easy-to-use and cost-effective answer to a problem facing so many SMBs— it’s also faced almost no competition. That changed in late August when small business software giant Intuit unveiled GoPayment, its own plug-in dongle/app solution available across Verizon Wireless’ 2,300 U.S. retail stores and B2B sales channels. The GoPayment service includes no monthly, transaction or cancellation fees, with a 2.7 percent fee rate applied to swiped transactions. Intuit and Verizon also offer a premium version of GoPayment priced at $12.95 a month, applying a discounted rate of 1.7 percent for swiped transactions.
Square’s lead may seem insurmountable, but don’t underestimate GoPayment’s potential. After all, Intuit—best known for business and financial management solutions like QuickBooks, Quicken and TurboTax—already processes more than $17 billion a year in transactions for approximately 300,000 small business partners. Intuit is also connecting GoPayment to its other products: Its 4 million QuickBooks users may sync GoPayment transactions with the most recent versions of the accounting software for PC and Mac, with support extending to QuickBooks Online in the near future. That kind of cross-platform integration may prove irresistible to SMBs who already rely on Intuit to keep their finances in order. Small business owners will have to decide for themselves whether Square or GoPayment makes better sense for their company, but either way, the basic concept makes sense for virtually every startup: Not only does it render traditional card processing obsolete, but it sets into motion possibilities for targeted consumer interaction that cash and plastic can never come close to matching.
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