You may use the square reader, but how does it work? The small reader and a mobile device can replace large POS systems that we see everyday.
For the uninitiated, Square turns your smartphone or tablet into a credit card scanner/reader using a reader that fits into your audio jack and works with the Square reader App. The hardware and app is free, but Square will take a small percentage of each transaction (2.75% for swiped transactions).
The square card reader is actually quite simple and only contains a read head that is directly hard-wired to the 3.5mm audio jack, completely analog. This works exactly like old cassette tape players, in fact, credit card data can even be read (and listened to) using a modified cassette tape player.
The stripe on the back of a credit card is a magnetic stripe, often called a magstripe. A magstripe is similar to a piece of cassette tape. It consists of tiny, iron-based(rust) magnetic particles coated in a hardened, plastic-film like epoxy. Each of these particles is a bar magnet measuring 20 millionths of an inch in length. When the magstripe is “written”, the tiny bar magnets are magnetized in either a north or south pole direction.
An output signal is generated from the read head moving by the bar magnets and can be treated as an audio signal such as a microphone signal. The smartphone then amplifies, digitizes, and stores the signal. This data can then be analyzed to pull the card member card data out for processing.
Since tracks 1 and 2 duplicate cardholder account information, either can be read for purposes of payment processing.
The analog “audio” signal coming out of the square reader dongle can be visualized using an oscilloscope app such as the oScope app off the Apple App store. The frequency of zero crossings can be correlated and converted to 1′s and 0′s of the digital data which the square app can then process.
Check out this video to see what happens if you put a reel-to-reel track through Square reader instead of a credit card:
Square has recently (March 2012) updated their reader to include encryption, significantly complicating the design. They do this by digitizing the analog signal from the magnetic read head with the TI 430 chip. The chip is powered by an internal coin cell battery. I have not received the updated dongle from Square, but have added a photo of the new and improved square innards below.
The Intuit GoPayment card reader is also fully encrypted and differs from the new square card reader as it does not include an internal battery but only a large capacitor. The design seems to rely on power scavenging off the audio port to power the electronics.
Today: Square, Intuit, PayPal, Verifone and a whole host of other card readers now fully encrypt transactional data before it touches the smartphone. When standards catch up to this rapidly changing field, this level of hardware encryption with become the PCI standard.