Square, Chips, and PINs
Square, Jack Dorsey’s payments company, produce a fantastic little gadget that plugs into the headphone jack, which - in case you’re not familiar with them - looks like this:
It’s a neat idea: you download the free app, get the little white dongle, and start taking credit card payments right from your iOS device. Square take 2.75% of each transaction, which isn’t terrible.
If you’re dealing with low volumes or one-off events it’s a great way to take credit cards quickly: festivals, pop-up shops…I once used to organise buses for a running club, and being able to take payment from people on the day without having to carry a bunch of cash and change around would have been very useful!
Technically, Square is also rather clever. By using the headphone jack rather than the dock connector you can bypass Apple’s external accessory framework, and the contracts and non-disclosure agreements that come with it.
A few weeks ago PayPal launched their ‘Square competitor’: some people might think Square should be concerned about a dominant payment player trying to muscle into the same market, but I’m not so sure. I think Square has a bigger problem, one that will drastically alter their business model.
Chip & PIN
It’s easy to think of Chip & PIN as a European issue, but it’s not: it’s rolling out across the globe. More to the point, many card issuers are now actively preventing transactions from being carried out through the magnetic stripe by shifting liability for non-PIN sales over to the retailer.
If Square has any interest in international expansion then their products must support chip-and-pin. And that’s easier said than done under the current business model:
Square’s reader is technically rather simple: magnetic cards have been around for many decades, and producing swipe readers is very cheap - that’s how Square can afford to give their readers away for free. I suspect the ‘free’ reader is one of Square’s big attractions for many merchants who may be avoiding significant investment in point-of-sale infrastructure.
A chip-and-PIN reader, however, is considerably more complex: could Square afford to give such readers away for free? And even if they could, they’d need to use the external accessory framework and dock connector, which would require more work with Apple and limit devices to specific platforms (currently the headphone jack reader works on both Android and iOS phones).
It’s a complex problem, and that’s before you take into account the regulatory and certification issues of producing such a reader for cards.
There’s a finite number of approved chip-and-PIN devices - it’s very unusual when I’m shopping to see a reader I don’t recognise, and there’s probably only half a dozen models being used in the UK high street. Consumers are also actively educated to protect their PIN - will people be happy entering their PINs into a mobile phone? I suspect the card issuers may have problems with this.
Square Peg, Round Hole
The bottom line is implementing a Square-like solution for chip-and-PIN could be extremely costly - and doing so might require some drastic changes to the current business model of ‘free reader, percentage cut’. But then again, whoever did crack it could probably make an absolute killing: cheap, easy payments on the go for all? Europe and other chip-and-PIN countries are crying out for a solution, and hopefully someone will provide one in the not too distant future.