How mobile payment company Square works and how it makes money

Square girlsSquare’s S-1Two women using Square’s point of service solutions.

Mobile payment company Square filed to go public on Wednesday afternoon.

The company was founded in 2009 by Jack Dorsey after his co-founder Jim McKelvey struggled to accept a credit card payment for a piece of art he created.

Now it’s generating more than $US850 million annually.


Mostly, Square allows merchants to accept mobile credit card payments via a plastic dongle that can be inserted into the port of a phone. Square, like a credit card company, takes a cut of the transaction (2.75% per swipe or 3.75% plus 15 cents for manually typed transactions). It also has other products, software, and point of sale services that make it like the cash register of the future.

But dealing with credit card companies and tiny transaction fees isn’t easy. So here’s how payments are processed by Square, according to a diagram in its S-1 filing:

Here are the four steps, from the S-1:

  1. Once the Buyer is ready to make a purchase, the Seller inputs the transaction into the Square point-of-sale (POS) and presents the Buyer with the amount owed.
  2. The Buyer pays for the transaction by swiping or dipping their payment card, or by tapping their NFC-enabled mobile device on the Square Reader or Square Stand, which captures the Buyer’s account information.
  3. The Square POS sends the payment transaction information to Square, which acts as the Payment Service Provider (PSP).
  4. Square passes the payment transaction information to the Acquiring Processor via an internet connection. Square pays a small fixed fee per transaction to the Acquiring Process.

And here are all of the products and services Square offers its merchants:

Square also makes a good chunk of its revenue through a partnership with Starbucks, although that is ending one year earlier than it was supposed to because it caused a lot of issues, so much so that Square listed it as a risk in its S-1.

Here’s the full revenue breakdown:

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