By Gerry Shih
SAN FRANCISCO (Reuters) - Square Inc, a closely watched payment-processing company, made a significant push into the hardware business on Tuesday, unveiling a new credit-card reader that it claimed could be the centerpiece of the next-generation checkout counter.
At a press event in a sunlit San Francisco cafe, Chief Executive Jack Dorsey introduced the "Square Stand," a white, molded-plastic iPad holder that lets businesses accept credit cards with a mounted iPad and an integrated card reader.
Coupled with an iPad and Square's free iPad software, which processes credit-card payments wirelessly and tracks sales, the new Stand represents a complete offering for small businesses that can replace existing point-of-sale systems, Dorsey said.
"We wanted to unveil not just a great piece of software that allows them to build their business up, but also hardware to match," Dorsey said. "Square is extending its hardware story."
Square's Stand, which is aimed at brick-and-mortar stores such as coffee shops or clothing retailers, goes on sale online on Tuesday. It will become available at Best Buy, beginning in July for $299; iPads are not included.
Privately held Square, on track to process $15 billion in payments a year, has faced the challenge of thin margins, according to analysts, since it relies on middlemen such as banks and credit-card networks to complete transactions every time a merchant swipes a card through a Square reader.
RACING TO WIN OVER MERCHANTS
Square's business model has prompted some analysts to encourage the company to focus on software that could bypass traditional credit-card companies rather than continue to develop physical card readers in the face of intense price pressure from competing payment processors.
For instance, PayPal, the online payment giant owned by eBay Inc, is going head to head against Square in brick-and-mortar stores by offering slightly lower processing rates and other incentives.
PayPal President David Marcus said on Tuesday that, beginning next month, PayPal will process payments for free for the rest of the year for any merchant that replaces its existing cash registers with one of PayPal's new point-of-sale services.
But the new Square Stand could help the company win over merchants who can integrate the devices into their software network in the long term, analysts said.
The new Stand, is "about a merchant land grab. If you can catch a merchant at startup time and get them using your point-of-sale system, you have a long-term client," Aite Group senior analyst Rick Oglesby said.
The local brick-and-mortar retail market is 20 times the size of online sales, and providing the offline equivalent of online e-commerce services represents a massive opportunity for companies, Oglesby said.
"The strategic piece of it is to become the online marketplace of the local commerce world," Oglesby said.
Although Square has sold matchbox-sized card readers since its inception in 2009, the Stand represents a slight departure for a company that has focused on refining its software offerings in recent years.
Dorsey, compared with late Apple Inc chief Steve Jobs by Silicon Valley commentators for his focus on product design, recruited former Apple industrial designer Jesse Dorogusker last year to develop Square's hardware.
Sporting a sharply tapered suit and Converse sneakers on Tuesday, Dorsey pushed back against the notion his company should focus on software.
"The thing people always say is, 'Is the Square Reader going away? You're not a hardware company,'" he told Reuters. "No, we love building hardware. The more hardware we can build, the better. But only if it's additive. It can't be distracting at all. And this is additive."
(Reporting by Gerry Shih; Editing by Jeffrey Benkoe, Bob Burgdorfer and Jan Paschal)