How Square Solved Credit Card Payments for Small Business Owners

MAY 26, 2016 • Blog Post • BY ATLANTIC RE:THINK

IN THIS ARTICLE

  • Square has completely revolutionized the way small businesses do business, helping them compete with companies once out of their league

Three entrepreneurs across industries share how Square has solved the credit card problem

Every day, it seems, some new device or technology emerges that promises to be the much-heralded “next big thing.”  Some of them actually make it—companies with new business models like Uber, Airbnb and, among the patriarchs, PayPal. More recent success stories include one of PayPal’s most successful young progeny competitors in the digital-payment business, Square. 

Born in 2008 and still headquartered in San Francisco, Square has become a winner due to laser focus on connecting vendors, however small, with their customers, however many, everywhere and all the time. Thanks to Square, small and medium-sized businesses, from restaurant chains to independent housecleaners and plumbers, could suddenly take credit card payments just like major retailers.

The company’s growth, once started, has gone increasingly vertical. Last year’s letter to shareholders showed fourth-quarter gross payment volume of $10.2 billion (a 47 percent increase over 2014), adjusted revenue of $135 million (up 64 percent) and total net revenue of $374 million (up 49 percent). Square said that its “continued and sustained growth” was attributable to its base of more than two million active users (each of which also represents the potential for job creation and economic growth) and the acuity of the company’s founding vision: to establish a “cohesive commerce ecosystem that helps sellers start, run and grow their businesses.”

As with virtually every other “next big thing,” it began with one—but actually two—of those exceptional people who can see the obvious before anyone else. In this case, the moment of insight came one day in 2008 when Jack Dorsey, in his native St. Louis, was trying to buy $2,000 worth of glass faucets from his friend Jim McKelvey. Dorsey was already co-founder and CEO of Twitter, but McKelvey, in addition to a deep love of glass blowing, was something of a computer genius.

McKelvey couldn’t accept Dorsey’s credit card. It was clear almost immediately to both of them that the missing link was something that could transact card charges more easily and on the spot—something small, easy to carry around and with mobile connectivity. Dorsey and McKelvey agreed they would team up to make it happen. McKelvey designed the prototype, which was indeed square (the name inspired by the notion of “squaring a deal”). By the time the first model had made its way to New York’s Museum of Modern Art, Dorsey and McKelvey had long since become, respectively, CEO and chairman of a new company, Square Inc. That startup started trading on the New York Stock Exchange in November 2015.

Square’s founders’ early decision for a 2.75 percent fee-per-swiped transaction, lower than that of most credit cards and lower than PayPal, recommended them to every sort of business owner and independent contractor. Consider just three of its use cases and a few of its two million entrepreneurs.

Schools: Square collects dues, fees for school trips, payments at benefit auctions, etc. In all, according to the company, more than 10 million individual scholastic donations. It wasn’t that way a few years ago, though, when Katri Backman-Koster says she first saw Square being used at her local farmers’ market. That was just before she became president of the PTA at Horace Greeley High School in Chappaqua, New York. Bent on making a difference in her new role, she said she wanted to try it.

“It was free to sign up, and all of a sudden we didn’t have to tell everyone, ‘Remember to bring your cash’ or ‘Remember to bring your checkbook,’” Backman-Koster says. “With people able to use their credit cards on the fly, Greeley Wear (branded school apparel) increased sales by close to double. We were selling tons of stuff. And the way the transactions were reported to us was perfect. There were no back office financial situations ever. On the Sunday after a Saturday sale, we got the report and it was clean and detailed. The reliability of the behind the scenes accounting was very important.”

Beauty shops: Denise DeVoe is a 26-year veteran of scissors and blow dryers in San Francisco where she spent two decades with a budding chain of hair salons. Based on her advice and guidance, the firm adopted Square a few years ago. “We had been with a death grip (credit card) service, and I read an article where Starbucks started using Square,” she says. “We had just fulfilled our agreement, so we switched.” In June of last year, DeVoe opened her own business, processed six to ten swipes a day and watched her business grow. “Of course I stayed with it. It’s simple, very user friendly, very reasonably priced and great for clients.”

Restaurants: “There have been over 10 million meals sold with Square,” says the company, and Rebecca Simonson knows why. As general manger at Bon Me, a growing food-truck business in Greater Boston featuring an eclectic mix of Asian entrees, she knew “this is what I needed” as soon as she first saw it. Its merits for her are universal among Square’s user base. “It has democratized the way people can approach a smaller business, and it has driven other prices down--meaning those from early startups to the big boys. Bank of America has come to us and said, ‘We can come down a little bit. Do you think we can we compete?’”

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Other startups have indeed undercut Square’s 2.75 percent-per-transaction price point, but that clearly hasn’t prevented the company’s growth or ambition. Square Capital, which started in May 2015, lends money to users. Its smartphone app, Square Cash, lets users send money to each other (hello, PayPal).

Its fundamental virtue, however, remains its founding insight. As Rebecca Simonson puts it, “This is what I needed!” Which is exactly what Dorsey was thinking when McKelvey couldn’t take his card—the signal difference being that they didn’t have to see it to see it.

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