How Square Works

One of the biggest selling points of Square is the ability for small businesses to accept credit card payments. A great example is a vendor at a farmer's market. In the past, shoppers had to use cash to buy organic kale and gooseberry jam at a farmer's market. With a service like Square, a farmer's market vendor can turn her smartphone into a fully functioning cash register that accepts payment by credit or debit card and deposits the funds directly into a bank account.

The first step is to download the Square Register app for your iPhone, iPad or Android device through either the iTunes App Store or Google Play. Then you need to sign up for Square Register at the Square Web site. Once you sign up, Square will ship you a free card reader, a small device that plugs into the headphone jack of your smartphone. You can also buy the card readers at drug stores like Walgreen and Rite Aid and receive a credit for the cost for later use with Square.

Next you need to enter your bank account information into the app so that credit card payments can be deposited into your account. Square says that most payments are deposited in one to two business days.

The service isn't free, though. Square charges a fee of 2.75 percent of each transaction swiped or a flat $275 monthly fee. If you are a farmer's market vender that uses Square Register for relatively few transactions, then the percentage rate is a better deal. But if you are a larger retail store that processes a lot of credit card transactions, the flat monthly rate is the best option. Note that Square charges more for manually entered credit card numbers — 3.5 percent plus 15 cents per transaction. Even if you choose the flat $275 monthly rate, so-called "keyed-in" transactions are charged an extra fee.

Square Register is more than a convenient payment service. The free app works just like a real point-of-sale terminal at a restaurant or clothing store, except those things cost thousands of dollars. The app lets you create entries for everything that you sell, complete with pictures and prices. To make a sale, simply tap the items to be purchased. The app even will add appropriate taxes and tips.

To process the payment, swipe the card through the reader or enter the account number manually (some online reviewers complain that the card reader is unreliable). You can even send receipts by text message or e-mail.

To boost profits and develop your business, the Square Register app offers built-in sales reports and analytics to track your best-selling items and offer loyalty rewards to frequent customers.

Now we'll look at ways to use Square as your virtual wallet.