Square arrives, but without tap and go

Australia finally gets to use big-name US payments company Square's mobile payment device on Tuesday, but it is missing the key contactless payments function.

Square country manager Ben Pfisterer said tap-and-go would have made the device too expensive and too big – a drawback competitors have struggled with – to fit Square's signature shape, but pointed out a PIN won't be needed for purchases below $35.

Square country manager Ben Pfisterer: "Marriage equality for Australians needs faster action by policy makers to ensure we're building not only a world-class economic environment, yet also ensuring we continue to work towards a society void of discriminatory prejudice."Credit: Peter Braig

Australians are the biggest users of contactless, with 60 to 70 per cent of Visa and MasterCard transactions now done this way.

"A lot of hard work has gone into it to create an alternative solution for small business; we think there is a huge gap in the market in Australia," Mr Pfisterer said.

Square's latest chip card reader is being launched in Australia, but it won't be contactless, because then it would be too big.

Ever since it started expanding overseas several years ago – as well as the US, Square is in Canada and Japan – rumours have spread that the company, led by Twitter founder Jack Dorsey, would pick Australia next due to our big use of smartphones.

The delay in Square entering this market has allowed several competitors to get in first, including PayPal, and local playerMint Payments, which has just announced its expansion into south-east Asia, eWay, Ingogo and Tappr.

All their devices accept contactless, but are much bigger than Square's and cost much more.

In 2009 Jack Dorsey packaged bulky card terminals into a large postage-stamp-size square that connects to smartphones, and gave away its magstripe reader free in the US, making money on payment fees.

Australian model

In Australia Square will cost $19 then incur a 1.9 per cent fee per transaction. This includes all merchant service fees and Square's own cut.

Although it is being phased out, the US relies on so-called magstripe technology more than most other countries. Australia abolished signature authentication in 2015 and is the heaviest user of contactless, adding greatly to the cost of entering this market.

So after opening an office in Melbourne in May 2015, Square first offered its "Dashboard" in July in Australia. This is an online software-based cash register for small business that gives the user a lot of transaction data.

Mr Pfisterer said its "sweet spot" is "nano and micro businesses". But it would also be useful for mid-sized businesses like restaurants, or for "queue busting".

Asked which competitors he would seek to take share from, he said "anyone in the card payments space", but cash is its biggest rival because many of its customers don't have any other option. "We are creating a whole new market."

Banking consultant Grant Halverson of McLean Roche said the 1.9 per cent fee appears steep for Australia and especially for small merchants, and Square will have a tough time supplanting bank terminals, which are mostly owned by the big four.

"Square will get plenty of noise but little traction unless they are prepared to put sales people on the ground," he said.

"The Aussie banks are well embedded with retail merchants, not just with card acceptance but often tied up with business loans, mortgages and related products.

"So in my view it will be a tough sell, hence the need to have sales folks – you just can't use the internet as your only channel."

Square will launch its device with a lot of fanfare. From Wednesday to Friday it will hold a "Square Market" in Melbourne's Federation Square, with the Victorian and federal small business ministers, Philip Dalidakis and Kelly O'Dwyer, presiding.

Profiles of Jack Dorsey with Australian media have also been timed to coincide with the rollout.

Correction: An earlier version of this article said PayPal's mobile card reader does not take contactless payments. That is incorrect. The original version didn't, but the latest upgrades do.