For the entire credit card industry, everything old is about to be new again. And Square, the e-commerce start-up, wants to cash in on the opportunity.
The company, based in San Francisco, plans to introduce a new version of its credit card reader hardware next year, a device that the company hopes many small and medium-size businesses will quickly adopt.
The reader will look much the same as the current one, about the size of a box of matches; it’s what’s inside that counts.
Square’s new reader will be compatible with microchip-enabled credit cards. The microchip technology, commonly referred to as E.M.V. (short for Europay, Mastercard and Visa), communicates with payments processors to determine whether the card is counterfeit every time it is used to make a purchase.
Merchants in many countries around the world have already adopted E.M.V. technology and can process the chip-enhanced cards. The United States, however, is behind on its adoption. And to push American businesses to catch up, credit card companies have given merchants a deadline of October 2015. Beyond that, every time a business that hasn’t shifted to an E.M.V.-enabled reader processes a counterfeit credit card, that business ends up liable for those fraudulent charges.
That’s where Square comes in. The company’s pitch is that its new reader will be smaller, faster and cheaper compared with next-generation readers that competitors like VeriFone offer.
It’s impossible to verify those claims before the device is actually released. But one thing is certain: It will cost more than the current reader, which is free. Square has not yet announced the price of its new reader, but it says it will need to charge retailers because of the cost of materials required.
But if Square can convince small and medium-size businesses that it offers a better deal than its well-entrenched competitors, the start-up could use the opportunity to pick up a whole new mass of merchant customers.
“What we see in other markets is that the small merchants tend to become the last to adopt,” Stephanie Ericksen, vice president for risk products at Visa, said in an interview. “They not only have to upgrade their hardware, but also their software and back-end systems as well.” That’s costly for, say, a coffee shop in San Francisco that doesn’t want to spend hundreds on a new card reader, especially when its current reader works just fine.
That said, industry heavyweights already have a multiyear head start on Square, which has yet to introduce its new product.
“VeriFone and Ingenico have been seeding the market with E.M.V.-ready terminals for a few years,” said Nick Holland, a senior payments analyst at Javelin Strategy and Research. The E.M.V. transition in the United States will lead to a lot of sales of new devices, he said, “but the likes of VeriFone and Ingenico are already ready.”
Just like the current product, Square’s new reader will work with iPad, iPhone and Android devices, and will be available for pre-order later this year.
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