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SHENG Xin/Medill News Service

Mobile credit card readers are initiating a revolution in many cash-only businesses, including those at the Evanston farmers market.

Mobile credit card readers accelerate payment revolution

by Xin SHENG
Aug 28, 2013

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Tania Ruiz, owner and chef of Tomate Fresh Kitchen, is planning two big changes for her business next month. She’s opening a new storefront bakery in Evanston and she’s migrating her credit card payment system to mobile readers – the small card-swipe devices that sit atop iOS and Android phones and tablets.  

Customers drove the change, as they mainly bring their credit cards or debit cards to area farmers markets where Ruiz currently does business.

“That’s what they mostly use instead of carrying cash.” Ruiz said. “I wasn’t able to sell my goods to them. I lost that business and it was a large amount.”

Even at her retail store, Ruiz sees no reason to have a traditional credit card swiper and said she will use a mobile tablet credit card reader instead.

Ruiz is part of a quiet revolution that has seen more traditionally cash-only businesses, such as street vendors and taxi drivers, jump on the mobile credit card payment bandwagon.

A survey released earlier this month by media and advertising research firm BIA/Kelsey found that 40 percent of small- and medium-sized businesses accept payments at the point of sale with a mobile credit card reader attached to an iOS or Android smartphone or tablet, such as PayPal Here and Square. Another 16 percent plan to adopt mobile payment devices in their businesses within the next 12 months.

“The data reveals professional and home and trade services are embracing mobile in a big way, with service providers essentially becoming walking point-of-sale terminals,” said Steve Marshall, director of research at BIA/Kelsey, in a press release.    

Compared with old school credit card swipe machines, tablet credit card readers are smaller, lighter and more convenient. Vendors only need to swipe a credit card on the reader and then type the amount of the transaction on the phone or tablet touch-screen to finish the transaction.  

Robert Wolcott, co-founder and executive director of Northwestern University’s Kellogg Business School Innovation Network, said the mobile payments trend is rapidly accelerating due to businesses and consumers demanding more flexibility. He said this will eventually force banks, the traditional credit card partners, to change the way they do business.

“The impact over time will be to vastly expand the number of ways people can pay each other,” Wolcott said. “It also creates more choice regarding the technology platforms on which businesses and consumers can move money.”

At the Evanston farmers market each Saturday, vendors see the benefits – and increased sales -- their competitors enjoy with mobile readers and their customers increasingly demand the convenience of credit.

Joshua Millman, 33-year-old owner of Passion House Coffee Roasters in Evanston, has been accepting credit card payments with a Square reader for just a few weeks and is pleased that his fee has dropped to 2.75 percent of each credit transaction with Square from 3.25 percent with his old bank credit platform provider.  

Emily Shivy, a sales representative for Pasta Puttana, said her company started using a Square credit card reader at the beginning of this year for the speed and convenience.  The payments Shivy swipes on her cell phone link directly to her boss’ bank account.

“It couldn’t be any easier,” Shivy said. “I don’t even need a password, so I log on, when I use my card reader, the money goes directly through to her deposit account, so it’s really convenient, fast and she will call me during the day and say ‘oh seems that you are doing a lot of credit card sales.’”

After a customer finishes the transaction through Square, there are three different options: print a physical receipt, text the receipt to the buyer’s cell phone, or email the receipt to the buyer.

If a customer has used Square before, his or her personal information will automatically pop up in the vendor’s cell phone.  

“Our recent growth has been fueled by increased adoption by brick-and-mortar merchants who are tearing out their old point-of-sale systems to run their business with Square,” said KC Simon, a product marketing representative at Square Inc. in San Francisco. The company struck a deal with Starbucks last year to allow customers to pay for their coffee at company-owned stores with Pay, Square’s payer application.

Square advertises on YouTube and has given out free Square readers through its website, which has boosted marketing through word-of-mouth.

“Traditionally, there have been very few of the platform providers (VISA, Mastercard, Discover, AMEX) and they are able to command a lucrative fee from all transactions.”  Wolcott said. “Square’s decision to give away readers is right if their objective is to try to reach scale and make inroads against the traditional payments providers.”

But while Square was the early leader in mobile payments in 2010, PayPal Here has by far overtaken the company for the biggest share of the U.S. mobile payment market today, and the competition continues to heat up.

Intuit Inc. announced a strategic alliance with Verizon Wireless this week that will allow Intuit’s GoPayment app and credit card reader to be sold in Verizon Wireless’ 2,300 retail stores and business-to-business sales channels. The pocket-sized small business-friendly machine plugs into a BlackBerry, Android or iOS device.

Verizon’s business customers can get a free Intuit’s GoPayment reader after a $30 mail-in rebate. The transaction fee is 2.7 percent per sale – just under Square’s 2.75 percent fee.  Paypal Here charges 2.7 percent per swipe.  Merchants who use a paid GoPayment version at $12.95 per month will have a lower per-swipe fee of  1.7 percent.

Still, some businesses are hesitant to join the mobile payment revolution and are taking their cues from customers.

Neither Tim Krick, a 44-year-old statistician, nor his wife, who runs a German-style cookie booth at the Evanston farmers market, has a phone that is compatible with mobile card readers.

“We’ve thought about it and we think once enough people start asking us if we take credit cards we will think about the reader,” Krick said.

Wolcott predicted big businesses might also take a while to fully adopt mobile payment technology.

“It can’t just be ‘better’ on certain criteria.” Wolcott said. “It must be enough better to cause the incumbent companies to change from the solutions they already have in place.”