Square: Turning an iPhone into a Credit Card Reader

Up until now, if you wanted to accept credit cards as a small business or an individual, you had to jump through incredible hoops. High monthly fees, proprietary terminals, and complex contracts with merchant banks. But Square has just changed all of that with a tiny, elegant piece of hardware and an iPhone app.

The Dongle

The "Square Reader" is a small white cube that plugs into the 3.5mm headphone jack of your phone. When you swipe a card, the reader converts the magnetic stripe data into an analog audio signal. The app then digitizes this signal and sends it to Square's servers for processing.

It’s an incredibly clever "hack" of the hardware. Instead of needing a specialized data port (which the iPhone lacks), they used the port that every phone has.

The Software and Pricing

Square is also disrupting the pricing model. No monthly fees, no minimums. Just a flat 2.75% per swipe. For a food truck, an artist at a fair, or a coffee shop, this is a game-changer.

// How it works:
1. Swipe card -> Analog audio signal
2. App -> Digital data -> Encryption
3. Square Server -> Payment Gateway
4. Digital Receipt (Email or SMS)

Outlook

Square is the first "fintech" company that feels like a Silicon Valley software company. They’ve taken a complex, gatekeeper-heavy industry and made it accessible through good design and clever engineering. I expect we'll see a massive wave of mobile payment solutions following in their footsteps. The cash-only business is officially an endangered species.