Square, Apple, And ‘SoftPOS’

Square intrigued the payments industry a decade ago when it emerged to provide small sellers with a simple dongle they could attach to a mobile phone to accept card payments. Now Square says it’s moving to the next step.

The company announced in June that later this year it will adopt Apple Inc.’s new Tap to Pay technology, which lets merchants take card payments directly on Apple’s iPhone.

Square’s move represents a major step forward for Apple’s technology. Apple earlier had signed up other major payments players, including Stripe Inc. and Adyen NV, to deploy Tap to Pay, which is particularly aimed at small sellers.

San Francisco-based Square, officially part of Block Inc., has been steadily increasing its share of processing volume with larger merchants. Square reported in May that it processed $39.5 billion in merchant sales in the first quarter, but merchants doing $125,000 or less in annual volume still accounted for 35% of that total.

Adopting Apple’s technology is “like a homecoming for Square,” says Don Apgar, director of the merchant services and acquiring practice at Mercator Advisory Group. “Their original value proposition was the innovative card reader that plugged into the audio jack of a smart phone.”

Information was not available concerning the proportion of Square merchants that have iPhones, which run on Apple’s iOS operating system. A spokesperson for Block refused to comment beyond Square’s news release. Apgar estimates the total in the U.S. market overall comes to about 40% of the small-merchant base, with the other 60% using Android devices.

But Apple’s links to major processors like Square and Stripe could help shift the market, Apgar says. “This is part of Apple’s play, it creates another reason to own an iOS device vs. Android,” he notes.

Certainly, the move to adopt Tap to Pay could be a canny one for Block, whose Square merchant-acquiring operation was seen by some experts as vulnerable to Apple’s technology, as well as to a similar system from Santa Clara, Calif.-based MagicCube Inc., which develops for Android devices. Collectively, this technology has come to be referred to as “SoftPOS.”

“One of the biggest drivers of merchant interest in SoftPOS is the elimination of hardware and leasing costs, which have historically been one of the biggest barriers of entry for [small merchants] and micro merchants, and one of the fundamental problems Square initially set to solve with their original dongles that put them on
the map,” notes Alex Ferguson, a senior research analyst at The Strawhecker Group, an Omaha-based consulting firm.

Now, with the insertion of Apple’s technology into the Square merchant base, SoftPOS technology may be poised for faster adoption, says Ferguson, who argues the technology has been slow to catch on up to now. “Apple’s inclusion is certainly an altering variable in the SoftPOS adoption equation, especially as iOS is a much more utilized platform in the U.S.,” he says. “This, paired with Square and Stripe’s atypical inclusion into Apple’s previously insular development of the feature, could be enough to shift the trend of the past couple of years.”

Tap to Pay is the result of two years of development at Cupertino, Calif.-based Apple, which in 2020 acquired a small Canadian company called Mobeewave that had built the technology. But Apple’s rivals in this market aren’t conceding any ground in the wake of Square’s announcement.

“There’s a move from hardware to software. It’s going to be seismic,” says Sam Shawki, MagicCube’s founder and chief executive.