Do you accept credit cards? You do now.

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The costs associated with opening a merchant account are often unrealistic for small business owners who don’t process enough transactions to justify the high monthly fees and expensive equipment. This is why many bars that take credit cards enforce a $20 tab minimum and why some merchants don’t take credit cards at all.

In February 2009 artist and entrepreneur Jim McKelvey got frustrated trying to set up a merchant account to sell a single piece of artwork to a potential buyer who didn’t have the cash. He and Twitter co-founder Jack Dorsey came up with Square: a mobile application for processing credit cards with no monthly fees. Meant for face-to-face transactions, Square’s point-of-sale terminal is the size of an ice cube and plugs into the iPhone, iPad or Android. The product launched in May 2010 and has already gotten a lot of press.

Square iPhone Engineer Buzz Andersen (pictured below) demonstrated the handy little device at the North Brooklyn Breakfast Club this morning.


Here’s how it works: plug in the square, pull up the calculator to enter the amount of the transaction, swipe the credit card through the slot and let the payer sign for the transaction right on the screen. (You can also punch in the number manually if the card won’t swipe.) A receipt can be sent to both parties via e-mail.


After Andersen’s presentation the entrepreneurs in attendance had some questions: how much does it cost? Who’s using it? Does it connect to Quickbooks?

The terminal is free, with the cost per transaction set at 2.75% of the total plus a 15-cent flat fee for swiped transactions and 3.5% plus a 15-cent flat fee for manual or keyed entry. Square handles the back-end processing with a third party. “We basically created a merchant account for you so you don’t have to,” Andersen explained.

So far Square has been great for food carts and coffee shops, says Andersen. Not surprisingly, it’s also worked for non-profits and political campaigns that take donations in the street. Square gets its funding from Khosla Ventures and a team of Angel investors.

The company is still in the process of expanding the service and working out the bugs. Square is not currently set up for e-commerce, nor does it sync with an accounting software, but if you’ve already got a smartphone, it’s a lot faster than using one of these guys: