In addition to needing your location services on, you also need your Bluetooth on. I had mine off to save battery life and I think it caused a problem with my chip reader.
I don't have the wireless chip reader, but I did have problems with two of the $29 chip readers that came out last year. One wouldn't hold a charge, and the other just didn't work, I filled out the online warranty on the square website and they sent replacements with a postage paid return labels for the old ones, no hassle at all.
This was months ago, perhaps they have better trouble shooting support now. Good luck!