Memo of Transmittal

To: Eang Hak

From: Andy Hak
Date: 27 November 2016
Subject: Proposal to Implement a Card Reader at Lompoc Donuts
Attached is the requested recommendation report concerning Lompoc
Donuts lack of a card reader. The purpose of this report is to improve
business.
Recommendations
Two possible solutions are introduced through the report. The
recommendations are the following:
Purchase a low-profile card reader from Square that accepts the two
most common forms of card payment
Purchase a physical card reader from PayPal that accepts all forms of
card payment
Methods
To support the proposed solutions, multiple research methods were utilized.
My primary sources are the following:
Personal interview with Eang Hak
Survey of Lompoc Donuts customers
My secondary sources are the following:
Journal article
Squares website
PayPals website
Findings
The information discovered through my research methods is reported in the
Results section of my report and is further analyzed in my Conclusions
section.
Final Recommendation
My final recommendation is to purchase the PayPal Chip Card Reader in order
to be able to accept all forms card payments.
Thank you for your consideration of this report. Please contact me if you
have any further questions.

Prepared for Eang Hak

Owner of Lompoc Donuts

Proposal to Implement a Card Reader at Lompoc

Donuts

Prepared by Andy Hak

Submitted November 27, 2016

Table of Contents
Introduction 1-2
Methods

Results

3-5

Conclusions 5
Recommendations 6
References 7

Table of Figures
Figure 1:

Figure 2:

Table 1:

Introduction
Purpose
Cash Only signs are not enough anymore. Lompoc Donuts has seven signs
posted, yet customers still walk in, select what they want, and hand the
cashier a card. In this day and age, it is common to assume that a majority of
the businesses we visit will accept cards; cash is becoming a lesser used
commodity [1]. People nowadays tend to only carry and use their debit and
credit cards since most businesses either own a card reader or have an ATM
nearby for customers. Typically, this practice is done because of the
convenience of not lugging around change and not worrying about having
the sufficient amount of cash.
The purpose of this report is to investigate the potential cost benefits of
having a card reader. As someone who worked as both a server and cashier
for the business, I understand the frustration that the customer feels when
their card is rejected at the register. Customers would rather not drive down
to the nearest ATM, withdraw money, and return to pay for their purchase.
Because of the lack of a card reader, the business could lose many potential
customers. I plan to address the owner of Lompoc Donuts, Eang Hak. I will
persuade him to implement a method to accept cards by either purchasing a
card reader from PayPal or Square.

Background
I worked for Lompoc Donuts in the past and still do from time to time. The
owner acknowledges the cash-only issue, but is also an old-fashioned type of
person. The mix of technology and business that surrounds the
implementation of a card reader is enough to sway him away from the idea,
since he sees it as a lesser problem that generates more of a headache to
him than benefit. However, the problem is not to be taken lightly. The owner
knows as well as I do that the signs are rarely read, and as a result, one
person can accumulate traffic at the register during peak hours of the day.
On an average day, we get approximately 79 customers during peak hours
and about 13 of those customers try and pay with card [2].
Other small businesses have solved their issue of not having a card reader
by turning to Square or PayPal. These two companies have created their own
product that allows any mobile phone or tablet with an audio jack to accept
card payments using an application. These products are intuitive to use,
straightforward with their fees, and capable of reading both magstripe and
chip cards [4], [5].

Organization

This report is composed of first the methods used for research, then the
results of the research from each source, then comparing the proposed
solutions using my results, and finally choosing between the following
recommendations:

Purchase a Square Reader from Square to be able to accept multiple

forms of card payments through the use of a mobile phone
Purchase a PayPal Chip Card Reader to have a physical machine
capable of accepting all forms of card payments

Methods
I conducted research using a variety of methods in order to examine the best
possible solutions that will solve the current problem for years to come.
Information on pricing from each card reader manufacturer along with the
inputs of both the owner of the business and customers were the key
components to research.

Primary Methods
Interview
The owner of the business also happens to be my dad, so requesting an
interview was simple.
Paper Survey at Lompoc Donuts
133 customers responded to the following survey:

Were the Cash Only signs noticeable?

Were you planning to pay with card but paid with cash instead?
Do you prefer paying with cash or card?

I kept the survey short and to-the-point with closed-ended questions to get
as many responses as possible, since most people would not want to stay for
an extra minute or so for a survey. The survey accomplishes the main goal of
obtaining information on how many customers would pay with card if they
could as well as what percentage of them actually planned on paying with
card.

Secondary Methods
Product Research
I will use the information found on PayPals website for their PayPal Chip Card
Reader product and Squares website for their Square Reader product.

Journal Article
I found a journal article with data that observes consumers purchasing
habits when cash or card is involved. The data is used to support my
observations and survey.

Results
The information I gathered from the methods mentioned above provided a
great deal of insight on the benefits of a card reader. My primary methods
confirmed that there is a possibility for improvement in payment at Lompoc
Donuts. My secondary methods confirmed that a card reader would
ultimately be beneficial for the future.

Primary Methods
Interview
I asked Eang Hak the following questions and his responses follow [2]:
1. Is it common for customers to attempt to pay with card, despite having
multiple signs noting that we are a cash-only business? If so, what times are
the most common?
Not too often, but not rare either. The most common time is during the
afternoon, especially during the high school lunch hour.
2. How many customers try to pay with card on average during peak hours?
About 13 customers out of 79.
3. How many customers actually return for their order after going to the
ATM?
Less than half of the customers return. It is more likely that they return
during the mornings.
4. What is the most common transaction (range) amount?
Around $9 $14.
5. Have you already tried or are currently trying to resolve this issue?
Have tried before, but any technical difficulties would cause a lot of
trouble since [he] has a hard time with technology. Also, since we have
multiple workers, it will be difficult to manage using one card reader
with multiple phones. Getting a machine can also be too expensive.
Survey
Of the 133 responses to the survey, 72 customers said that they had noticed
the sign, 65 said that they planned to pay with card but had to pay with cash
instead, and 105 said that they prefer to pay with card rather than cash [3].

Do you prefer to pay with cards?

Yes

No

Figure 1: Preference survey response [3]

Did you plan to pay with card?

Yes

No

Figure 2: Planned payment survey response [3]

Secondary Methods
Product Research
The Square Card reader and the PayPal Chip Card Reader both have their
advantages and disadvantages, as seen in Table 1.
Table 1: Card reader comparisons [4], [5]

Supports EMV chip

cards
Supports magstripe
cards
Supports Apple Pay/
Android
Pay/ Samsung Pay

PayPal Chip Card

Reader
Yes

Square Reader

Yes

Yes

Yes

No

Yes

Built-in keypad
Cost for unit
Percentage per swipe

Yes
$149
2.5%

No
$29
2.75%

Journal Article
The study in the article observed peoples spending habits when the option
between cash and card is presented. According to the study, people are more
likely to spend a larger sum when using card because they do not see
physical money going away. Additionally, this study showed that a large
majority of individuals today own a debit card. When paired together, it
seems to be an obvious choice to want to purchase a card reader [1].

Conclusions
The Cash Only policy at Lompoc Donuts is a problem because of the ever
growing dependence and favor surrounding the use of physical cash. Many
other small businesses have had the same issue, but have solved them by
ordering a card reader. As the future moves forwards, more and more people
will move towards using the more convenient and secure method of paying:
cards [1]. Some form of card reader must be implemented to keep up with
today and tomorrows demands.
My first solution is to implement the Square Reader. According to the
manufacturers website, the Square Reader has an upfront cost of $29 and
charges 2.75% per swipe [4]. The Square Reader has its advantages of being
low-profile as well as being less expensive upfront. However, since the
reader is attached to a mobile phone or tablet, customers have to input their
information and sign on the device. This may raise another problem on the
merchants end, however. When switching between multiple employees, it
can be difficult to manage devices to use for the transaction.
The second solution I proposed is to implement the PayPal Chip Card Reader.
According to the manufacturers website, this reader has an upfront cost of
$149 and charges 2.5% per swipe. The PayPal Chip Card Reader is bulky, but
that is because it includes a digital screen and a keypad. The reader also has
the advantage of being completely wireless since it connects using Bluetooth
[5]. While Apple Pay, Samsung Pay, and Android Pay are all lesser used
forms of payment at the moment, being versatile definitely pays off in the
long run.

Recommendations

After extensive research and comparison, I recommend that Lompoc Donuts

purchase and implement the PayPal Chip Card Reader. It is the best option in
the long run because of the support for new forms of payment and the lower
charge per swipe.

References
[1] E. Runnemark, J. Hedman, and X. Xiao, "Do consumers pay more using
debit cards than
cash?" Electronic Commerce Research and Applications, vol. 14, no. 5,
pp. 285291,
Sep. 2015.
[2] E. Hak, Owner of Lompoc Donuts. Interview. Lompoc, CA. 13 Nov 2016.
[3] A. Hak, Card or Cash at Lompoc Donuts, Survey. 13 Nov 2016.
[4] Square. [Online]. Available: https://squareup.com/under-250k?biz=food.
Accessed: Nov. 13,
2016.
[5] "PayPal here: Credit card reader | point of sale and mobile credit card
processing,"
in PayPal, 1999. [Online]. Available:
https://www.paypal.com/us/webapps/mpp/creditcard-reader. Accessed: Nov. 13, 2016.

Figures Referenced
[3] Figure 1. Preference survey response, Survey. 13 Nov 2016.
[3] Figure 2. Planned payment survey response, Survey. 13 Nov 2016.
[4] Table 1. Card reader comparisons, Square. 13 Nov 2016.
[4] Table 1. Card reader comparisons, PayPal. 13 Nov 2016.