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Why is Square (and Twitter) CEO Jack Dorsey smiling? New chip cards might mean more business for Dorsey.
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The US transition to chip cards could be a huge boost to Square

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Future of Finance

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By RBC Capital Markets’ estimate, it’s going to take about three years for small- and medium-size merchants to catch up to major chains like Target and Walmart in upgrading their equipment for processing credit-card transactions at the register.

That’s bad news for the procrastinating retailers, which are now on the hook for any card fraud that occurs on their outdated terminals.

But it’s potentially great news for Square.

Equipment upgrades at the register have been on merchants’ to-do lists since the introduction in the US of chip cards, and of new rules (as of Oct. 1) governing who shoulders the burden for payment fraud. But upgrading payment terminals can be expensive and time consuming, which has kept plenty of merchants on the sidelines.

Square’s terminal is cheaper than rivals’, which is one reason why RBC’s analysts think the move to the new card standard, known as EMV, could be a major catalyst for Square as it seeks to attract larger merchant customers—those that process more than $500,000 worth of transactions. RBC says that, so far, only top-tier merchants like Target and Walmart have upgraded their terminals, leaving a wide berth for Square to move in.

According to a new report from RBC Capital Markets, analysts think the move to the new standard, known as EMV, could help Square attract larger merchant customers—those that process more than $500,000 worth of transactions—something Square’s been doing more of over the past few years. RBC says, so far, only top tier merchants, like Walmart and Target, have upgraded their terminals.

RBC Capital Markets
Merchants have been slow to update their payment terminals to support chip cards.

“EMV penetration remains quite low at all merchants except the largest, and as merchant size increases, so does the need for more value-added POS terminals and solutions,” RBC noted.

That puts the ball in Square’s court, as the Jack Dorsey-led company, which went public in November, rolls out a new payment terminal of its own. Square has publicly stated that the new terminal will be shipped to customers this fall, but it’s still only available for 100 merchants across the US during an expanded pilot phase.

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