Square, the mobile payment upstart that’s combined a credit card-reading dongle with the iPhone and iPad to take on established point-of-sale (POS) payment solutions providers, has been making frequent appearances in the news of late.

From attracting users like the Obama campaign and taxi drivers in New York City to overhauling its mobile app in an effort to drive consumers to local businesses, it appears that Square’s $4bn-plus in annual payments processed could be just the tip of the iceberg.

But that doesn’t mean that Square’s success is guaranteed. Powerful, entrenched competitors like Verifone are moving to solidify their positions in the POS market, and digital majors like PayPal are launching their own Square-like solutions.

To succeed, Square will not only need to up its marketing game, it will need to improve its product.

When it comes to Square’s product, one area where competitors have attacked the company is security.

Up until now, security has been an easy target because Square’s card reader didn’t employ encryption. It was such a juicy target that Verifone actually launched a site specifically hammering away at the security issue.

So Square has finally responded by adding encryption to its card reader. As reported by VentureBeat, all of the dongles Square is shipping to merchants today come with encryption baked in and over time, Square will upgrade existing merchants to ensure that their readers are more secure as well.

According to VentureBeat, there is some downside for Square with the encryption: it adds to the cost of the card reader. But whatever the costs, the company arguably had no choice but to eat them as the security of mobile card readers is only going to become more important as more and more merchants begin using them.

With the encryption issue apparently solved, the big question now for Square is what else it can do to differentiate itself from the competition. With PayPal Here and others hot on its tail, simply covering the bases might not be enough.