Jim McKelvey is a craftsman in St. Louis who makes high-end glass faucet and fittings for a living. His pieces are expensive but one would easily fall in love with them. He was distraught one day after he lost a sale because he only accepted cash in store. It’s an on-going pain for him that if customers need to pay with cards, the sale is lost and usually does not return.


McKelvey’s problem is shared by many other merchants. The credit card processing mechanism is a convoluted system. A card company charges the merchant the cost of card reader, monthly fees and interchange fees for the service to process card payments. What really bothers the merchants is the interchange fee, a small percentage of every transaction collected by the card company. The rate ranges from 1% to 4% and varies based on a combination of credit card programs and business types. These fees are deducted from the merchant’s account at the end of the month along with any charge, making it hard for small and medium-sized business to accurately gauge their cash flow.

“Only one-fifth of businesses under $100K in revenue accept credit cards”, reported by the Federal Reserve Bank of Philadelphia.

McKelvey complained to his friend Jack Dorsey, the former Twitter CEO who was then chairman of Twitter’s board, who became interested in examining the card processing system. Together, they founded the company Square headquartered in San Francisco in February 2009. Khosla Ventures and Sequoia Capital were the lead investors in Round A and Round B respectively.

Key Stats:

  • Founders: Jack Dorsey and Jim McKelvey
  • Management: Jack Dorsey (Chairman & CEO)Jim McKelvey (Co-founder)Sarah Friar (CFO)
  • 2017 Q3 revenue: 585 million


Square started with a 2.75% processing fee per swipe. In 2012, it introduced an option to pay a flat rate of $275 for businesses with monthly debit- and credit-card transactions of $21,000 or less. However, in 2013, it discontinued the flat-fee plan. During an interview with Wall Street Journal in November 2013, Lindsay Wiese, the spokeswoman of Square, explained that the change in pricing was due to feedback from customers who said the “caps and limits” of the flat fee were “inhibiting growth”. This change did concern many customers who were attracted to Square precisely because of the flat rate fee.

(Being an analytical person, I did some number crunching.) Compared with the flat rate option, businesses make under $10,000 monthly will not be affected (those 30 million small businesses defined by Federal Reserve), while businesses with over $250,000 annual sales/$20,833 per month can consult with Square for customer pricing. Businesses make between $10,000 and $20,833 will pay more under the percentage structure.

Currently, Square’s monthly pricing structure is set to the following:

  • 2.5% + 0.10 cents per card and contactless payments made on Square Register. Clearly, Square is promoting its own register product with monetary incentives.
  • 2.75% per card and contactless on all other square accessories. (I will explain Square’s products in a second.)
  • 2.9% + 30 cents per transaction for invoices, online store, and Square eCommerce API
  • 3.5% + 15 cents per manually-entered transaction. The higher fee for manual transactions is to compensate for the higher risk of fraud when the card is not physically present.

Businesses get their funds fast. After a business activates a Point of Sale account and links a bank account, payments made before 5 pm Pacific Time (the default cutoff) will be available in the bank account the next business day, and those after 5 pm PT will be available by the second business day. An exception is that no deposit will be sent on Saturdays. Businesses can also customize the cutoff time is they open until later. Businesses can get their funds even faster if they link a debit card to initiate unlimited amount of instant deposits up to $2,500 at a time, 24/7.

next day


Square listed on New York Stock Exchange in November 2015 with a somewhat disappointing IPO priced at $9 per share when the management was expecting a price between $11 and $13. In the past week, Square’s stock price fluctuates between $38 and $45.

The rise in stock price over the years is a reflection of Square’s ability to attract more mature businesses in addition to the long-tail small businesses. In 2014, merchants with annualized card sales of $125,000 or more accounted for less than a third of total payment volume at Square. By 2016, that number amounted to 42 percent. The fluctuation can be attributed to Square tapping into cryptocurrency, which is a highly volatile market.

Hardware Product

Square offers both software and hardware accessories as alternative solutions that allow convenient and simple processing of all major cards.

chip reader

Magstripe reader/ Chip reader

With a magstripe reader or chip reader plugged into iOS and Android mobile devices, the app processes payments even offline. In contrast, POS machines by card companies cannot properly function when offline.





Contactless and chip reader

Suggested by name, it processes chip cards and all NFC payments, namely Apply Pay, Samsung Pay and Android Pay.






Square stand

The iPad stand comes with contactless & chip sensor. The stand and the app together turn iPad into a smart register. It can collect customer feedback from digital receipts, create employee logins, allow real-time inventory management, and store customer card information securely with cards on file.





Square Register

It is a register built by Square and is integrated with the entire Square software eco-system. Separate ticket printer and hand-held scanner can be purchased.







Although hardware products are commonly seen, Square’s innovation at the core is its analytics capacity. Stay tuned my presentation next Wednesday!

Square Payroll

Enterprise Resource Planning software is too sophisticated for small-medium businesses to use and too expensive to implement. It is not surprising to see Square tapping into payroll service and aggregation planning since its POS app keeps track of daily operational data at ease. Square Payroll is another software service the company offers. Employees can clock in and out from the POS app, and payroll software imports the timecard automatically from POS app. Business owners can then pay employees and/or contractors with a few clicks online. Square Payroll also tracks sick leave and paid time off.

Square Payroll also offers great flexibility, which is key to smooth operations. Managers can pay every type of employees as many times per month as needed. The ability to run payroll or send payments at any time eliminates the need to wait until the next pay period. Its pricing scales with the business. When there is a change in the workforce, Square adjusts its pricing.


Square Payroll relieves business form the tax report headache too. It generates, prepares, and files Form 1099-MISC for contractors and all federal and state payroll taxes forms for employees, as well as post-tax deductions. It also handles new-hire reports and workers’ compensation via its insurance partner, AP Intego.



According to Square’s website, “the Square Payroll service has filed over $230 million in payroll taxes for small businesses.”

11 thoughts on “Square

  1. Great post, I am excited for your presentation to learn even more about Square. The progressive method of payment seems to be a preferable option, especially for small business, which is why I am sure I have noticed Square being used in local coffee shops and retail. As I have never had direct experience with Square aside from using the iPad and chip sensor at some shops, I would like to know some downsides to using their software and hardware, from perspectives of upper management to lower level employee.

    Liked by 2 people

  2. Great start. Square is one of the companies that I visited on both of the Tech Treks I went on (5 years apart). It was really interesting to see how much it had evolved over that time. Looking forward to your presentation. LMK if you want me to look at a version before you present.

    Liked by 2 people

  3. Awesome post, Jenny!

    Square reminds me a lot of the new startup local to Boston, Toast! If you are interested in Square, you should definitely check out their website. Toast provides the cashier system that Square does for the specific application to the restaurant and food business. Their device also keeps track of waiting times, open tables, chef availability, inventory/supplies, and more! It extensively keeps track of data, and makes recommendations to improve sales as well!

    Looking forward to your presentation.


  4. Great post!! And Square is one of the few IPO success stories of 2017. They’ve had quite a run-up in their stock price. Why do you think that is the case?


  5. Great post! I have seen the Square hardware products at various places, but never given them much thought. Thanks for finally educating me on how helpful they are for small businesses! I’ve definitely noticed over the past few years that more and more of my local small businesses have been accepting credit cards, and now I realize the motivating force behind it. Square Payroll sounds like just the beginning of what could be a wide range of additional services Square can offer businesses. I’m looking forward to learning more!


  6. I’d love to get your thoughts on how you think Jack Dorsey (who’s also the CEO of Twitter) is able to balance leading two companies with two different visions at the same time and if you think that’s an appropriate strategy for two companies who independently are listed on the NYSE.
    Thanks for the share, love reading about the mechanics behind why every local shop, from my favorite bagel bakery to my local shoe cobbler, seems to be using Square now.


  7. Great post! I remember seeing Square hardware at KungFu Tea and thinking registers machines are finally stepping up their design game after years of bulky and heavy classic design. Square’s registers seem far more portable as well as customer friendly compared to others. Also, I’m surprised how they changed their pricing policy after hearing some feedbacks from small businesses. I’m excited to find more about this company through your presentation!


  8. Pingback: How many ways can you get food delivered? | Tech Trek

  9. Pingback: Square’s IPO Woes | Tech Trek

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