Square Up: New Technology Turns Smartphones into POS Devices

      Posted On: January 11, 2011

by Drew Love, FMC Research & Education Intern

Technology changes everything, retail included. One of those changes has been the gradual transition from cash payments to credit and debit cards. Most farmers markets remain a cash only affair, but several vendors are catching on to the advantage that’s gained by accepting credit and debit cards. Aware of vendors’ interest in accepting card payments, and of the difficulties faced by the temporary and mobile design of a farmers market, Square Up, a new company in California, has released a new product that promises to bring vendors (and the rest of us) into the 21st century of electronic banking.

The Square, as it’s called, attaches to your iPod, iPad, or Android, through the audio port. Set up is completed by downloading the app and then connecting your bank account to one of the aforementioned devices. At the moment, both the Square device itself and the app are free, making the start up costs quite affordable. The transaction charges are 2.75% of each transaction, plus 15 cents, if the card is physically swiped through the Square reader. For “card not present” transactions, the fee is 3.5% plus 15 cents. Square also gives you the option of choosing tip, tax, and having your receipt sent directly to you and/or your customer’s email.

Square’s ability to offer the device, app, and transaction services through one company is unique. Their closest competitor, ROAMpay Swiper, provides the swiper device for $44.95, a $10 monthly membership fee, an initial one time $25 set up fee.

However, ROAMpay’s additional costs also come with a clear advantage. ROAMpay certified merchant services offer rates that are more than 1.5% lower than Square. In addition, users won’t have daily or weekly processing limits as they would with Square.

The clear difference between the two? Square offers you an all-in-one device with zero initial charges, but higher transaction fees. ROAMpay has set up costs, and monthly account costs, but much lower transaction fees. Depending upon your volume of business, ROAMpay might be a better value.

Of course, there are larger issues at play then merely comparing transaction costs. Rashida Ferdinand, Executive Director of the Sankofa Community Development Corporation, mentioned that she had some issues with customer service when she attempted to try out the device. She said that her “account was denied,” and she had trouble contacting customer support. Her disappointment makes her question the company’s readiness to work with farmers markets, some of which may need more hand-holding than tech-savvy urban businesses.

What goes without saying is the more overarching limitation of such mobile point of sale technologies– that they require smartphones. Farmers are famous for their diversity of backgrounds, but one common feature is that the farming way of life does not always involve the same technologies that their digitally-connected (some would say, ‘over-connected’) urbanite counterparts consume with such gusto.  In other words, smartphones are expensive, and not necessarily a logical budget priority for a cash-strapped farm operation. A recent story published by msnbc.com revealed that half of all farmers must work off the farm in order to make ends meet. While Square, and its competitors, might be a great new technology for most retail outlets that lack credit card readers, the financial realities of many farmers markets are different.

On one hand, that difference means that the expense that goes into purchasing a smartphone, and the accompanying data plan, might not be a widespread solution to connecting farmers to electronic payment methods.

On the other hand, David Nicholson, principal and founder of North Node Consulting and former market manager in Minneapolis, states that “there are many broad studies that conclude customers spend more per shopping occasion when they can use a card as compared to when they are limited to using check or cash.” Which means, paradoxically, that farmers might be pinching their pennies because, unlike the rest of retail, they’re still getting paid in actual dollars and pennies. Would springing for a point of sale device create the wider income stream that could allow some farmers to cut back, or even eliminate, that off-farm job? That remains to be seen.

Hans Bishop, a diversified Illinois farmer who sells at the Bloomington Farmers Market, has been using the SquareUp since August. FMC’s Executive Director Stacy Miller caught up with Hans at the Illinois Specialty Growers Conference on January 5th. “I wanted to increase on-farm sales, and figured this was a safer system than potentially accepting checks that might bounce,” he said. Because the market uses a token system for EBT, credit, and debit, he has not widely advertised his credit/debit acceptance at the market just yet. In the last five months, about 10% of his on-farm sales are through Square, mostly in the form of CSA deposits and larger purchases of beef, chicken, or pork. Next year, he plans to more actively communicate his credit/debit acceptance at the farmers market, and to determine a minimum purchase amount for such purchases. “I’m not willing to pay the processing fees on a $3 head of lettuce,” he explained.

Among the growing movement to incorporate SNAP clients into farmers markets, one must ask, “Do these new sale devices accept SNAP cards?” Currently, the answer is no, with no mention of plans to accept EBT payments soon. Darlene Wolnik, Director of Marketshare at marketumbrella.org says that “not accepting EBT is a deal breaker for most markets- why we would set up two separate machines, with separate costs, to do the entire system is illogical to me.” The two systems refer to one system to handle credit and debit transactions, and another system to handle EBT cards. Farmers markets are often operating on a lean budget, and are understandably tentative to take on technological advances if doing so means more paperwork and a greater administrative burden.

Weighing in on the EBT aspect, David says that the farmer himself might not lose out on much, as currently “EBT swipes account for generally less than 10% by dollars of total swipes” in most markets. However, he still expresses some concern on how these devices, if widely adopted, might perpetuate the technological barriers that have kept EBT shoppers out of farmers markets for so long.

Andrea Gold, Director of the Benefit Redemption Division at USDA’s Food and Nutrition Service, has already anticipated the problem. When asked about how these new technologies might exclude EBT shoppers, she commented on how FNS is “awaiting a proposal from a State that plans to use a similar product at farmers markets for WIC cash value vouchers and is working with their vendor to incorporate SNAP if at all possible.” So while current smartphone card swipers do not accept EBT, it appears as if the future is bright for including EBT customers in the next wave of farmers market payment systems.