Hello Square; Goodbye Cash
From Issue: Volume XXI - Number 7
By Steve Propes
On St. Patrick’s Day, the CBS-TV news magazine “60 Minutes” presented a profile of Twitter inventor Jack Dorsey’s new online innovation called Square. With use of Square, Dorsey stated, “anyone with a cell phone can become a merchant.”
Dorsey then demonstrated how the Square works through a plastic attachment on a cell phone that allows swiping of a credit card. The remainder of the story was a soft overview of Dorsey’s career, neglecting to follow the most important aspect of the Square, at least according to Long Beach credit account executive Ted Hyde: that Square has the potential of creating a parallel and potentially untraceable economy.
According to Hyde, the ability of a business to accept major credit cards is not as easy as applying. When a business receives a bank loan, that bank usually clears the way for the business to have such credit card ability at a rate favorable to the bank, of course. After a business is established, the merchant may well seek out more favorable terms for credit card transactions and that’s where a consultant like Hyde comes in. It’s his job to locate the best possible rate.
Most big businesses, supermarkets, department stores and chain restaurants are considered good risks and qualify for the best rates and terms.
Then there are the “qualified risks,” antique dealers, door to door salesmen and bail bondsmen. These businesses can set up accounts with low fees. But not so for “restricted risks,” direct marketing, gambling, advice and vacation rentals. In the case of these merchants, the rates can be higher and the processing time, that period between the card being used and the money showing up in a merchant’s account, can be longer.
For a top tier business, that time period is generally two days and the fee for two percent of the transaction. Business rated as a “qualified risk” generally fall into this range, but before they can get approved, “you have to provide detailed business information, your associates, bank accounts, all things related to your business.”
As was allegedly the case of the now-infamous cupcake business on Spring Street, “merchants can run all transactions twice. Nobody knows about it for 30 days hence.” By then, they might be in parts unknown. “Restricted risks” pay more and wait longer, or as with airlines, “they use a specific processing bank.”
Then there are the “prohibited risks,” medical marijuana dispensaries, telemarketing, Internet tobacco, lottery, gaming and all illegal businesses and some “at the edge of legality.” However, banks that accept their trade can be considered problematic. “I don’t want to be working with a credit company and see their logo on a porn website if I’m a merchant,” said Hyde.
One dispensary operator stated he had a merchant account with Chase, Wells Fargo and Bank of America, but “once banks realize what you do or they are audited by the government, they drop you. The federal government tells them to shut you down, they shut you down. That’s why dispensaries have ATMs.
Dispensaries only deal in cash. They simply cannot get banking anywhere. Finally, I went through a small Korean state bank.”
And that prediction is backed up by a March 24 Associated Press story that many businesses are doing away with a 100-year-old artifact, the cash register.
Asked if this is a way for the IRS to eliminate the underground cash economy, Hyde replied, “I don’t know if the government will be the driver. Business to business checking will continue for the time being; that’s the way business is done. “Instead of a check,” said Hyde, “that will be a piece of plastic. Little by little they’re edging out cash.”
Though dispensaries can use a few alternate banking systems, other flatly illegal businesses such as street gambling, loan sharking and drug dealing are cash only. Hyde expects that within 10 years the financial sector will definitely be checkless and most likely cashless.
Though drug sales depend on cash, it’s not likely they will just accept a cashless economy and shut down. That’s where Square comes in. It’s a no-questions-asked way of giving credit acceptance ability.
“The way they market it, why not have one of these?” said Hyde. “But you would end up paying $50 on the $500 garage sale. There’s a market for it and sounds real simple. They put a security key in the phone itself.”
“Mobile payments and all the other information-capturing devices are all the first step into mobile payments. Eventually all the cell phone companies are going to develop a chip or device in the phone to replace credit cards and cash. Go up to somebody, double click on phones, money’s transferred. How that will develop is unknown right now.”