Square, the mobile payments startup co-founded by the creator of Twitter, showed off technology Monday that it said could one day replace cash registers and eliminate paper receipts.
Using the San Francisco company's free software and credit card reader, merchants can effectively turn an iPad into a cash register to accept payments and receive real-time analytics of their sales.
Customers can also run a virtual tab at their favorite stores. After swiping a card at any participating shop, a user can link the card to a Square account. From then on, the merchant can accept a payment simply by tapping on the user's photograph from inside the Square software. Receipts are e-mailed to the customer electronically.
Jack Dorsey, the co-founder and CEO of Square, said the new app will make transactions easier and build stronger relationships between merchants and customers.
"Today we want to take away all of this clutter, all of the paper, all of the mess, and get rid of the takeout menu, get rid of the loyalty card, get rid of the receipts, and merge all of this mess and replace it with one clean digital card," said Dorsey.
Credit card reader
Square released its first product in 2009, allowing anyone to make and receive credit and debit card payments using a free reader that plugs into smart phones and tablets. There are no contracts or fees to join; Square takes a 2.75 percent cut of each transaction. (The startup leases space in a building owned by Hearst Corp., parent company of The Chronicle.)
The company has shipped 500,000 card readers and is on pace to process $1 billion in payments this year.
On Monday, 26 Bay Area small businesses began using Square's tab function, allowing them to charge customers with a couple finger taps. The companies include Sightglass Coffee, Smitten Ice Cream and Mission Minis bakery.
Keith Rabois, Square's chief operating officer, said the company focused on small businesses because historically they have resisted paying the high fees associated with credit card payments. They have also been less likely to pay for software that tracks and analyzes sales, which Square's updated software now does free of charge.
Sophisticated tools
"We're launching this in the market where it has the most possible impact," said Rabois, who was formerly an executive at PayPal and LinkedIn. "We're allowing local sellers to have the most sophisticated tools, for free."
Square's rapid growth has been accompanied by skepticism, in large part because of the high failure rate among companies that have tried to enable payments on mobile devices.
"They're running out of space in the graveyard for payment startups," said Aaron McPherson, an analyst with IDC Financial Insights.
McPherson said that while Square has shown good instincts about bringing payments to mobile devices, they still face huge challenges. Persuading both merchants and consumers to adopt a new form of payment has been difficult, and it's unclear whether Square's newest features will be enough to get their attention, he said.
He also called the notion of using iPads as cash registers "robber bait."
"How are you going to secure those things?" he said. "If I were a store owner, I wouldn't dare have that out on the counter."
Cheri Mims decided to take the risk. Mims, who runs the flower shop Lilybelle in Mint Plaza in San Francisco, didn't want to pay high transaction fees for accepting cards. But she found that many of her customers were purchasing flowers on a whim and showing up without cash. Square has let her serve those customers more easily, she said.
Brandon Arnovick, owner of Mission Minis, said he had happily abandoned his old credit card processing equipment after discovering Square. The software has made the company's iPads more versatile sales tools, he said, because employees can show prospective customers a catalog of cupcakes in one app and then make the sale using the Square app.
"It just seems like it's a no-brainer for a bakery like ours," Arnovick said. "This is totally the future."
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