Commentary

Will Big Retailers Get Hip To Square?

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I hope this Square thing catches on, especially if it can help make every big retailer's checkout experience more like the Apple Store's. That is to say, turn every in-store salesperson into a roving register to speed things up. The startup, whose small attachment turns a smartphone into a credit card reader, got a further boost this week with payment giant Visa making a strategic investment in the company.

Visa's backing lends additional legitimacy to Square as well as opening a door to the vast marketing resources of the global payments powerhouse. On top of that, Square revealed at a Visa security conference this week that it will roll out a new version if its reader this summer that encrypts credit card data.

Square came under fire recently from established electronic reader rival Verifone recently for the lack of encryption technology in its device, which can be attached to the iPhone, iPad and Android devices to process card transactions. The company's CEO warned of a "gaping security hole'" in the startup's hardware. Square founder and CEO Jack Dorsey defended the security of the company's technology, calling Verifone's claims unfair and inaccurate.

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Nevertheless, Square COO Keith Rabois said in a blog post Wednesday the company is signing on to Visa's newly unveiled set of mobile payments best practices, which call for encryption of all account data at all levels, including at the card-reader level.

"Square is excited to collaborate with Visa in helping define and shape the security guidelines for the rapidly evolving mobile acceptance space," wrote Rabois, who noted the company is already complying with all current industry standards. Obviously, the more confidence merchants have in Square's security, the more likely they'll be to adopt it.

But if most of Square's clients so far have been small businesses, it seems there's an opportunity for big retailers to use the Square hardware to equip smartphone-wielding salespeople to handle card purchases from anywhere in stores. Apple would seem to be a natural partner since staffers in Apple Stores are already using specially outfitted iPods to ring up sales. In fact, Apple recently started selling the Square gizmo for $9.95 (even though Square offers it for free).

Late last year, the Gap began piloting Apple's iPod-based point-of-sale system at a few Old Navy stores. But most retailers have shied from venturing beyond the traditional checkout systems made by Verifone because of concerns about security and connecting newer payments technology to back-end systems.

To the extent Square's new alliance with Visa can help ease those concerns, it could help the company make inroads as a card-reader alternative. It could also provide a welcome alternative to waiting in long checkout lines.

But don't bank on it, said Greg Buzek, president of IHL Consulting Group, which focuses on technology for the retail and hospitality industries. "I don't see this having a major effect on larger retailers, as they will likely be adding a mobile device from their current processor who handles all their other credit volume," he said. Buzek added that small and non-traditional merchants would remain Square's main market.

Still, if emerging systems like Square spur more retailers to follow Apple's example in developing secure mobile payment options to improve the shopping experience, all the better.

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