Square’s Plan to Exploit the Big Switch to Next-Gen Credit Cards

Square

By next October, every checkout counter in the U.S. will look a little bit different. Or at least they’re supposed to.

That’s the deadline set by the credit card industry for merchants to upgrade their point-of-sale systems to accept chip-based credit cards, a more secure upgrade to the magnetic-stripe version that much of the rest of the world has already adopted.

Whether U.S. merchants will balk remains an open question. But the ones who do plan to get on board represent a huge, time-sensitive market for new hardware—a market that Square is hoping to exploit.

The San Francisco mobile payments company made a splash in 2010 with one of the first credit-card readers that plugged right into the headphone jack of an iPhone. Since then, however, such card readers has become commonplace, and Square has had to rely more on the quality of its apps and services, its flat-rate pricing, and ease of signup to attract business. But the transition to chip-based cards offers a narrow window of opportunity to lure new merchants with the promise of hardware that allows them to leapfrog the upgrade cycle altogether.

On Wednesday, Square said it would start accepting pre-orders for its first mobile card reader equipped to scan chip-based cards. The $29 device, which Square previewed for WIRED earlier this year, includes slots for both the new cards and the old mag-stripe version. It’s a little bigger than the old single-slot model, since readers of chip-based cards—also known as EMV—require a battery to power their scanners.

Square is offering a standalone chip-card reader as an accessory to its Square Stand for iPads. Square

Facing the Consequences

Aside from the larger size, the new reader same simple design as Square’s original device. As such, it also appears to be one of the simplest options for becoming EMV-compliant. Especially for the kinds of small merchants Square targets—coffee shops, farm stands, indie retailers—that compliance is important.

Failure to meet the deadline set by the major credit card companies comes with potentially serious consequences. In the past, merchants who were victims of credit card fraud could typically expect the card companies themselves to cover those losses. But those companies now say merchants who are victims of fraud but didn’t have an EMV reader installed will have to cover those losses themselves.

If a small business owner doesn’t accept credit cards yet, or was thinking about switching to a mobile point-of-sale system based around, say, iPads instead of a traditional cash register, opting for hardware that at this point doesn’t accept EMV wouldn’t make sense. By coming out of the gate early, Square is putting itself in a position similar to when it first launched, where its hardware alone once again gives it a competitive advantage.

But that advantage may not last long. Would-be rivals are circling. Unlike four years ago, a credit-card reader that plugs into your phone isn’t a novel innovation anymore. It’s a given.