Wednesday, 3 September 2014

[W4] Application Critique - Square Register

Application Critique - Square Register


Square is a mobile POS tool that processes all major credit cards. They have a data analytic component that tracks and reports popular products with customers.

Most Important Takeaways from the Presentation

1. Square is Mobile

This is definitely the most important feature and competitive advantage that Square has would allow it to triumph over the other POS systems. The presenting group is right to emphasize on this point through their mini-skit (which I admit I found amusing). However, I have mixed feelings about it. 

Well, most companies now accept payments online first then deliver the goods. The delivery of goods is usually no more than just a deliveryman (from FedEx/DHL/Singpost) passing on the goods to the customer.

When I first hear about Square, I thought it was an awesome idea. It could revolutionalise the way deliveries are made. If payments are made in person instead of through the net, it means there is an additional opportunity for contact between the business and their customer. It opens up a window of opportunity for the business to cross-sell complementary products to customers in person right before they deliver.

The psychology behind why this will work is that people are vulnerable to relatively small impulse purchases, and especially right before they pay. Since they are already paying for a big ticket item, if you sell them a perceived useful item that is much cheaper relative to what they are paying for, they are more likely to think "Well, it doesn't cost a lot and I could use it" than when they have time to evaluate the choices. I am not kidding you, just google around and you'll see. One famous example I can cite here is this: If you needs to drive across town to save $7 on a $25 dollar pen, you are likely to do it because that's a huge discount. However, if it were about saving $7 on a $495 suit? You most likely wouldn't because the perceived savings is less, even though the savings is the same. Similarly, customers will think less about a small purchase if they are already making a large one. 

But upon deeper introspection, I decided that it is very hard to put this theory in place.

For one, the person receiving the product is usually not the same as the one purchasing it nowadays. If delivered to customers' home, it may be any of his or her family members receiving the purchase. If delivered to an office, the receiver is usually the mail room or receptionist first. The window of opportunity is not consistent and hence, not profitable if you ask me.

The other thing is that shifting from a "pay first, deliver later" system to a "payment on delivery" model is going to increase risks for businesses. If you don't have to pay immediately when you purchase it, people may get irresponsible with their purchases, such as cancelling it even though it is being delivered. This means more volatility or write-off and is definitely not favourable.

Hence, even though it is mobile and has the ability to change the way deliveries work, the incentive for businesses is not high enough for the switch.

2. Square POS is free...

except for processing Credit Cards, which is virtually all the transactions that will go through it. Technically, 2.75% is the market rate and is even cheaper than Paypal's processing fees (see here). 

Like the previous point, this initially looks like an enticing choice, but I can also see why businesses do not want to take this up.

I did a basic market research on the rates businesses charge for POS systems, but I didn't manage to get any reliable figures. My anecdotal experience from doing sales for Prolink is that businesses are charged 2% for processing credit cards locally. If this were true, at 2.75%, Square would not be able to compete locally with the typical retail bank merchant services. 

A little off topic here, but my research also revealed that the popular retail banks such as DBS and Citibank can provide both wired and wireless terminals, which sort of made Square's mobile competitive advantage a moot point in retail businesses.. 

Back on topic, another major turn-off for Square is that even though the reader is free, every reader needs to be accompanied by a corresponding mobile device (probably a tablet). The point here is obvious, the implicit cost of adopting Square is that the businesses need to buy hardware to support it as well. After all, I wouldn't trust a business with my credit card if their POS system (i.e. the mobile device) is something the salesman also uses for his social life and brings home every day. 

So, after these costs are added up, Square still has to be cheaper than conventional methods for it to be a viable alternative.

3. Data Analytic Service

Square provides you up-to-date sales information that would be very useful for businesses. Such information includes top items by sales, new vs returning customers, average visits/spending, etc. 

This is something that I feel is a competitive advantage of Square. From the interface shown in class by the presenting team, it looks very polished, targeted, and relevant to all kinds of businesses. 

To the best of my knowledge, these monolithic organizations trying their best to hold the rubbish from legacy systems together, otherwise known as banks, have yet to catch up with such post-modern feature of rolling out analytic to the businesses. 

The crux of implementing useful data analytic will lie in the execution. From the interface, one can see that many fields need to be filled in per transaction. With a card reader and no bar code scanner, I just hope that inputting the sales item will not require much manual effort. The reason why many data is unclean is because the fault lies at the point of input, where the cashier or salesman input what takes the least time or is the most convenient to them (probably during peak periods), rather than ensuring each input is accurate. If the whole process from purchase to payment is as seamless as their interface, I am sure data analytic will automatically become useful.


The competitive advantage of Square lies in its mobility and data analytic service. While its mobility feature can be positioned better, the data analytic service provides huge incentive for businesses to switch.

In my opinion, the target market of Square would be the more educated, tech savvy crowd, who are aware of the benefits of data analysis. 

There are business owners who may not be educated, but have very good business acumen, which they have relied on to build their enterprise. This market would be harder to penetrate because the owners often do not choose to rely on data, but on their instincts instead. The educated crowd would be aware of the latest buzzwords (such as big data) and would more likely have an interest in analytic, 

These more educated owners would also be less resistant to switching to a more modern POS tool, presumably because they would also be dissatisfied with the outdated and clunky UI of conventional POS tools. 

Square is also very suitable for Small and Medium Enterprises (SME). These are the businesses that do not have enough profits to justify the exorbitant fees charged by data analytic companies such as SAS and would benefit from Square's payment scheme to get a basic data analytic. 

Small businesses may not have the infrastructure to support collecting data as well, and this is where Square can also enter as the solution to their lack of infrastructure.

Would Square be a success venture? I feel that it has the potential. The group mentioned that Square isn't doing very well in the US. While I do not know what is their implemented strategy, it is of my opinion that if they implement the entire experience well enough, from front-end to back-end, and target the correct group of people, Square would be able to gradually grab a slice of the market before its much larger competitors take notice. Hopefully, by then, Square would have invested enough resources in its infrastructure and offerings to be able to compete with the big players by itself. Only then will it be able to change the industry.


  1. I feel that while Square may not be as useful for accepting payment on delivery of goods (like you said, goods are normally paid for online before delivery), it could still come in useful for people such as repair-man, locksmiths, swimming instructors, etc who may be contracted to come down for home and office services.

    Since Square entered the market, there has been lots of competition from other companies. PayPal, for example, launched a similar service PayPal Here just 3 years after Square's launch, charging merchants 2.70% per swipe -- 0.05% less than Square. The rates charged by credit card companies are actually pretty complex. What Visa charges merchants is different from what Amex (usually higher) would charge them. This value changes every month and merchants only know of it a month later. What Square does is make it simple and predictable for its merchants.

    Another interesting point our group felt Square had was its ability to accept payments offline (say in an area without internet connectivity). This would not have been possible even for mobile wireless terminals provided by banks.

    Also as mentioned during the group's presentation, Square does have a range of supported hardware -- and barcode scanners are one of them! Even without, the checkout process is only a matter of tapping the item the users want to buy -- similar to what most POS systems are today.

    As for customer trust, I was just wondering if you would choose to dine at a different restaurant if a restaurant that you love once day decides to processes their payments with such devices. I can imagine that some people would, will you?

  2. Thanks for the insight on credit card charges. I didn't know that Credit card charges fluctuates. That would certain be a plus point for Square since Square give businesses certainty in their cost.

    For your restaurant question, I definitely wouldn't switch restaurant, but I would be bewildered if the waiter swipes my card using his personal phone. I probably would insist paying at the counter, or insist my card gets swiped by a company hardware. But if enough businesses adopt it, who knows? It might cause a paradigm shift in our payment methods.

  3. I think an advantage of square is the device - if the device is really free, what you can do is simply hold onto it till you need to clear stuff out. I believe (without evidence or experience) that most of the other services require a monthly fee or at least sufficient volume in order for you to hold onto their devices.

    Essentially this puts a barrier to entry to smaller businesses. Square is probably targeting those. There are other use cases - hobbyist groups which only sell at events, for example (although most people are expected to have cash anyway).

    I pretty much agree with you on the remaining components and i don't have anything to add.

  4. Hmm the part on trust and security is pretty interesting. I guess most people nowadays are pretty laxed about their credit card information. Most people hand their CC at the table to the waiter for him/her to bring back to the counter to process the payment. Opening a tab at the bar would also require one to leave one's CC in someone else's hand. Although that is the case, I do understand the reservation when giving one's CC to an individual (seller) v.s. a listed company.

    1. Following all the comments, I wrote a short reflection on my take on Square's security and customer trust. Feel free to read it here:

  5. The psychology behind why people are vulnerable to small purchases was an interesting read, although I agree with your evaluation that payment upon delivery is not likely going to work as well as it should.

    With regards to the hardware required, I doubt that the mobile devices would be also for personal use (unless that business is a funny business). Anyway, if I were a business owner, I would find it ridiculous to buy an iPad just to make use of Square...

    I like your description when comparing modern services to legacy systems. The reasons you gave in support of Square's data analytic services really did make me consider using it if I am a business owner.

  6. As Jonathan pointed out above, I think even without all the plus points about data analytics, the basic idea of Square being a mobile transaction terminal still has merit when it comes to things paying the repairman, locksmith, or swimming instructor. There still are businesses that have the user come face-to-face with personnel from the company, and they will be around for a lot longer. (drone locksmiths?)

    I think a bigger problem would probably be how Square is going to compete with the bigger players in the field, namely PayPal. Their ideas sound revolutionary - but also completely replicable. I agree that the deciding factor here is speed. If Square can get their infrastructure up to a respectable standard before the big guys notice, they'll be able to compete with the others.

    In the end, I think that Square has successfully introduced a paradigm shift - the big players like PayPal are taking notice, after all. Now they just have to worry about keeping themselves afloat.

    1. For now, Paypal and Square has a different market. Square deals only with USD but Paypal deals with many many many currencies. I think, if Square goes global, it's more likely for a partnership to emerge rather than competition.

  7. Regarding your first point, I feel that Square's primary target should not used fore online shops (blog shops) as it would present a logistical nightmare within the delivery process. I agree with the point you pointed out regarding the situation where the buyer may not be at home to complete the purchase, this by itself makes up the logistical nightmare I am talking about. Additionally, one more question to ask is that who will be the one performing the transaction then? Should the major delivery companies (FedEx etc) or representatives from the businesses themselves go down and complete the transaction using Square? Either way, both will create an inconvenience to their current logistic process. I maybe wrong but this is what I think. :) However, one possible target audience for them can be the shops in a flea market, I think Square is more apt for them.

    Secondly, I agree on the point where you mentioned that using Square might not be as cheap as we think. Another point to add on is the branding of Square as a cashless mode of payment for businesses. Compare the level of trust we have in (let's say) a DBS point-of-sale terminal and a small fishy device attached to an iPad when swiping our credit/debit cards. No matter how secure Square's system actually is, the trust/confidence of wanting to use this mode of payment is still quite low. So therefore even if the cost of using Square might be cheaper than that of using DBS's terminal, we still have to look at the consumer behavior part of it. :D

  8. As you said, square being mobile, in itself may allow square to one up its larger competitors. Smaller merchants who are on the go would only have to carry the small device instead of lugging around a big POS system. However if what you said about DBS providing wireless terminals as well, that might be irrelevant. (Although I have never seen such a wireless terminal).
    Another interesting point you have raised is that of which people would not trust the merchant if they were to use a personal device. After some quick thinking, I found that I myself would be less inclined to make payment on a device which has seen the wear and tear of daily use. And would be more inclined to make payment on a device which perhaps has the company branding.

  9. Hey!

    Interesting part about the psychological failures of the human mind. Read something similar from "Thinking Fast and Slow" and thought it's super interesting that you were able to apply the fallibilities of the human mind into Square as an app.

    Though, I think mobile still has some years to go before it becomes the bulk of payment. There is still the other half of the world coming online as we speak but I'm sure they'll not be so quickly accustomed to payment through mobile right as they pick up their new toy. Plus, the hardware entailed within their smartphones probably can't handle Square or the likes anyway. What I like though, is that Square being mobile - is forward looking.

    Next, on your point about Square POS being free... I just thought this - usually when something is marketed as "free", there is always something hidden even when they say there is none. Nothing in the world is ever free, right? It's just how hard we look for it and I'm glad you took the time to research and found out the caveat. Thanks!

    Lastly, I agree with you that this app is more suitable for SMEs than bigger enterprises who are also in themselves more resistant to change. Taking up Square is a big change. Also, inculcating the value of Big Data into big enterprises would probably take decades and retraining of all their staff. SMEs can contend much easily with this change, especially if they understand and know the immense value of Big Data as they have less people to re-skill.

    That's all for now, thanks for the insightful review into Square!