Square Tries To Reinforce Its Hip Image With a Fourth-Generation Card Reader

Square Inc. on Monday introduced the fourth generation of its now-famous payment card reader for mobile devices. The company has added new technology and made the device 45% thinner than its 22-month-old predecessor, two factors that may reinforce Square’s message that it is the cool merchant processor, different from all the rest.

“The reader is demonstrative of the new types of challenges that payment-acceptance companies are facing as we move forward,” Rick Oglesby, a senior analyst at Boston-based Aite Group LLC, tells Digital Transactions News by email. “Acquiring has long been considered to be a commodity, with little product differentiation and lots of price-based competition. Square’s approach is about turning a card-reading dongle into an asset, where for others it’s an expense. It’s the type of thinking that made Apple one of the world’s most valuable brands.”

It just so happens that the reader is produced by the staff headed by Square’s top hardware executive, Jesse Dorogusker, who before joining San Francisco-based Square led the accessories division at design-conscious Apple Inc. Square did not make Dorogusker available for an interview, but a spokesperson says by email that “we designed the new Square Reader for functionality. In an industry with historically uninspired design, Square is pushing its design forward to help businesses grow and feel good when they’re doing it.”

Square aimed its first reader, which it introduced four years ago and was shaped like a cube, at micro-merchants and small businesses that wanted to use their own smart phones for taking card transactions. While the reader, which plugged into a mobile device’s audio jack, had security vulnerabilities that competitors were quick to point out, it helped Square quickly build a merchant base and define the micro-merchant niche. Since then, Square has gradually courted larger merchants and is now the processor for Starbucks Corp. The new reader apparently marks a renewed emphasis by Square on its core customers.

The dongle works with the Square Register app for Apple’s iPhone and iPad tablet, and mobile devices running Google Inc.’s Android operating system. In contrast to its predecessors, which used-off the-shelf parts, “Square’s hardware team designed and engineered a purpose-built readhead, chip, and audio plug for the new reader,” the spokesperson says. The reader also uses power from the mobile device whereas its predecessor had a built-in battery. Square uses an unidentified manufacturer in China to make the devices.

Like its predecessor, the reader encrypts credit and debit card data when the card is swiped. But one thing it doesn’t do is read Europay-MasterCard-Visa (EMV) chip cards, which the major card networks are pushing U.S. merchants, processors and card issuers to adopt. In order to avoid liability for fraudulent card-present transactions, Square would have to offer a chip card reader by October 2015, which is when the networks will shift liability for such fraud to the non-EMV-enabled party in the transaction.

The new readers are available now at Square.com to all new Square merchants at no charge, and existing merchants can request them. They’ll also be available in 2014 at 30,000 retail locations.