Cabbie David Mendoza reaches for his iPhone and plugs in a spiffy Square Reader to process a ride's fare.
"When customers see it, they either say 'What is that cool device?' or 'Hey, that's Square,'" says Mendoza, 32, who used to struggle with a bulky payment device that was slow to pay him and hard to store records on.
Within a week of using Square, Mendoza was sold on the device -- as were his customers, many of whom would rather pay with a credit card instead of cash. "I wanted simple, and got it," says the cab driver.
Mendoza is one in a growing legion of devotees to Square, a credit card-processing company co-founded by Twitter inventor Jack Dorsey. Merchants nationwide have snapped up the small, white plastic device to quickly and inexpensively accept payments.
Despite a struggling economy, Square has found a lucrative niche among small businesses and is becoming a go-to fixture for a variety of companies -- from those hawking quirky goods to vendors at local farmers' markets. Even some Salvation Army bell ringers collect charitable donations via the Square Reader.
This year, Square, which makes its money by collecting transaction fees, has helped merchants process sales for $2 billion worth of luxury goods, such as jewelry, and for specialized services, such as massages, and even goodies at vegan-doughnut shops. The average purchase on Square: $75.
But Square faces formidable competitors and major hurdles to becoming a force with big retailers and corporations. "While Square is new, it's just facilitating a 50-year-old payment mechanism -- mag-stripe cards," says Nick Holland, an analyst at market researcher Yankee Group.
Mobile-payment transactions are expected to nearly double this year, to $86.1 billion from $48.9 billion in 2010, according to market researcher Gartner. Worldwide mobile payment users, meanwhile, will swell 40%, to 141.1 million in 2011, from 102.1 million in 2010.
Others have taken note of the trend lines. Google is the latest company to jump into the fray, joining PayPal, Intuit and scores of others. "It is a gold rush," Holland says.
Since its device and app became available last year, Square has gained more than 800,000 customers, who typically pick up Square free through its website, or with a rebate from retail stores including Apple, Best Buy, Wal-Mart, Target and RadioShack.
Smaller businesses primarily use Square's device, which plugs into the headphone jacks of mobile phones and tablets, to perform transactions.
The start-up has grown quickly by raising capital from the likes of Visa and venture capital firm Kleiner Perkins Caufield & Byers and enlisting heavyweights such as Sun Microsystems co-founder Vinod Khosla and former U.S. Treasury secretary Lawrence Summers to its board of directors.
When Square landed $100 million in funding in June, some analysts pegged its market value at more than $1 billion. Virgin Group head Richard Branson invested an undisclosed multimillion-dollar amount in November.
Square's card reader and apps have caught on because of the "transparency and simplicity" the company has brought to transactions for businesses, says Keith Rabois, Square's chief operating officer.
Customers who purchase smartphones at Best Buy often pick up a Square Reader in the process, says Robert Stephens, chief technology officer at the retailer.
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