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Of Round Pegs and Square's Holes
The Square payment system is cool, but not perfect.

May 23, 2011
Also published on Quora

Today was one of those days that technology reporters live for. If you happen to write for The New York Times technology section, or perhaps The Washington Post, Fast Company, or a number of other prominent publications, you received a fancy invitation to an exclusive event hosted by a prominent Silicon Valley tech startup that had, as one of its founders, someone who had made A Lot Of Money. And that someone had something new to talk about. The story was practically handed over on a silver platter—journalism at its best from many reporters' viewpoints.

Having seen Jack Dorsey speak in person (though I didn't bother watching the announcement live today), I can vouch for the fact that the CEO of Square is a very polished speaker. He sprinkles his prose with pleasing adjectives such as "beautiful" and "magical," usually to describe aspects of his company's work. There are very many things that I agree with him on. However, the notion that Square Register is going to replace cash registers overnight, or even anytime soon, is not one of them.

Anyone who has spent time analyzing the state of the retail economy in a technological context knows that the underlying infrastructure is not simple. In fact, it's possibly one of the most complex systems there is, given that it comprises myriad industries—including health care, groceries, clothing, entertainment, transportation, energy, restaurants, and of course, Square's sweet spot, food trucks. Every one of these industries has its own unique challenges and attributes, which is why the Point Of Sale (POS) software market is so unbelievably fragmented. My company, which does not directly compete with Square, but does compete with credit and debit card providers and banks, tracks roughly 60 POS vendors, most of which have more than one product line.

Could Square's new iPad offering rush in and sweep this mess away overnight? I suppose that anything is possible, but the chances are about the same as a tidal wave from the Pacific Ocean washing away the entirety of Nebraska. Square Register (whose name suggests that we were on the right track when we named our free POS system FaceCash Register in March; see http://www.digitaltransactions.net/news/story/3014) is a very good-looking product, but looks will only get you so far when you're dealing with cold, hard cash.

Take your average restaurant—and note that a restaurant and a coffee shop of the type you're likely to see in a Square ad—have much different needs. A restaurant should be within the realm of Square's reach, right? Not so fast. Restaurants typically have tables. They have waiters who expect to be paid tips, usually in cash. They very often have kitchens where food is prepared, and the kitchens tend to be far away from the tables, where orders are placed. Restaurants run payroll, which is based on hourly wage calculations. They pay taxes, such as sales tax, Social Security and Medicare.

"Who cares!" you might say. "Square is awesome!" That may very well be, but restaurant owners tend to care—a lot. The fact that the kitchen is far away and that every meal involves a slew of numbers (how many guests, how many dishes, how much money per dish, how many ingredients per dish, how much in revenue, how much in tips, how much in wages, how much in transaction fees, etc.) means that many restaurants use some kind of POS system already, and those systems are tied to hardware and contracts that cost a lot of money to secure. Not only that, but all of the employees have been trained to use the systems and have a certain set of expectations about what any new system should do. So, while an iPad might be great for taking an order, it should probably be able to do all of the other things that everyone expects, too. (Fun fact: most restaurants use Epson serial line thermal printers to notify the kitchen as to what has been ordered. Without any extra hardware or systems, you'll have about as much luck printing to one of those printers from an iPad or a MacBook as you'll have teaching your grandparents to write code in Objective-C. Replacing hardware costs money; a new IP thermal printer runs almost as much as an iPad. This problem is why Square stops short of letting you actually order ahead; because you simply can't integrate Square with the kitchen unless you happen to have as much money as someone who runs Square.)

Keep in mind, this example is just for restaurants. Using a system like Square in a large clothing store or at the gas pump doesn't even make sense to start with. Cash register software aside, car dealerships that allow customers to pay for a portion of a purchase, usually up to a few thousand dollars, would simply never use Square due to its incredibly high transaction fee of 2.75%. For a $5,000.00 transaction, that comes to $137.50. Movie theaters that process millions of dollars in transactions would similarly never agree to use such a system without a lower rate, radically subsidized hardware (i.e. free iPads), complete ticketing integration, and accounting support. No matter which industry you examine, it's fairly clear that in its current form, Square Register is light on substance and heavy on hype.

That's not to say that nothing is going on in the payment industry. The real winner is the tablet computer. Whether the POS software is made by Square or some other company, tablets in general will eventually be as common as coat hangers in many stores. Who makes the software is a different story. The market is likely to undergo some consolidation, and undoubtedly some of the smaller vendors who are reluctant to change will not be able to keep up, but things will remain quite fragmented for a long time.

As far as killing the cash register, or credit cards, or banks, or anything really, Square's line of reasoning is "magical," indeed. Square is the establishment. Its software is gorgeous, and its pricing transparent, but when it comes down to it, the bulk of U.S. retailers just don't care. They're looking for functional software and low prices, and as soon as someone figures out how to deliver those better than the financial establishment does today, Square will wish it had chosen a different name.

Aaron Greenspan is the CEO of Think Computer Corporation and author of Authoritas: One Student's Harvard Admissions and the Founding of the Facebook Era. He is the creator of the FaceCash mobile payment system, ThinkLink business management system, and PlainSite legal transparency project.

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