Twitter Founder Turns Square (with Mobile Payments)

Wednesday, December 2nd, 2009 by Jordan McCollum

Twitter Founder Turns Square (with Mobile Payments)

square_logo_dec09 Is it hip to be square again? Maybe according to Twitter co-founder Jack Dorsey. His new startup, called Square, is a mobile payments (credit card processing) system that appeals to small businesses. But is he targeting the right customers?

I think we’ve all heard rumors of a credit card reader for the iPhone—and this is it. A small, white plastic cube plugs into the audio jack of an iPhone or laptop (with software planned for Blackberry and Android). It scans the card, geotags the transaction and emails a receipt to the buyer. And just to be clear, Square is an app for merchants, not a way for individuals to electronically zap their bucks into the nearest Starbucks to pay for their latte.

And that may be the problem, too—because the product isn’t designed for big retailers like Starbucks. Its users will be smaller vendors, “who don’t qualify for accounts with traditional credit card processors because the would be deemed ‘high risk’ by these companies,” as Read Write Web puts it. According to the CEO of competitor Billing Revolution, Andy Kleitsch, that’s not going to be enough of a market, and bigger vendors just aren’t going to be interested in the product.

RWW also notes the potential for fraud:

Square will also have to deal with potential fraud. While we don’t know the exact details about how Square will operate, chances are that the company will have to keep a large reserve in an escrow account with the credit card processing companies that power Square’s back-end. Anybody who sits on a pile of stolen credit cards, Kleitsch pointed out, could use Square to run up charges on these accounts. Once the defrauded credit card owners dispute these charges, Square could be left with a large bill to pay.

However, one would hope they’ve taken precautions against this.

While Square’s website contends that processing card payments is “difficult, requiring long applications, expensive hardware, and an overly complex experience,” Kleitsch says that a payment terminal is typically free, with $20/month + 2% of all transactions as the monthly fee for the service. (While Square’s service is free, last time I checked, an iPhone runs $200, plus Square’s hardware investment, plus a monthly fee—AT&T’s$60 data fee. Ouch—unless you truly already need the iPhone for your business.)

Although one of their examples is of a local coffeeshop (of which Dorsey is a part owner), Dorsey appears to be targeting vendors even smaller than coffeeshops as well—vendors that may or may not have brick-and-mortar establishments, like artists or flower carts (another of the examples on their site).

What do you think? Does Square have the potential to take off—and if so, with small businesses or just micro ones?

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8 comments on “Twitter Founder Turns Square (with Mobile Payments)”

Ian Greenleigh Says:

December 2nd, 2009 at 6:28 pm

Appropriate list of concerns here. I see this as a huge opportunity for freelancers, trade-show frequenters and anyone else who conducts enough business out of the office that an on-the-fly solution would make sense. I’m liking what I’ve seen so far, and I can’t wait to see if it’s really an earth-shaker.
Ian Greenleigh´s last blog ..What Klout Can’t Calculate: Dimensions of Influence
Darren Slaughter Says:

December 2nd, 2009 at 6:54 pm

This has flea market written all over it. Shame though, would love to see a legitimate threat to that mess called PayPal.
blendahtom Says:

December 3rd, 2009 at 8:12 am

Guys .. I think some have touched on this but most are overlooking the “Rope a dope” he is pulling.. saying this going after small biz .. sounds cool..

But the disruptive part of this model is the adaption that will allow a paypal on crack.. so if I owe you $10 for pizza etc to firend or your selling your 95 honda civic for $1500 how cool would it be if you could take a CC.. or imagine what this could do for Craigslist transactions.. Ebay and Paypal are taking notice trust me!..
blendahtom´s last blog ..BlendahTom: Comment on: Is Jack Dorsey’s Square Going After the Wrong Customers?: Guys .. I think some have touched on this but a http://bit.ly/6sendK
links for 2009-12-02 « Scott Jangro Says:

December 3rd, 2009 at 7:19 pm

[...] Twitter Founder Turns Square (with Mobile Payments) (tags: merchant, creditcard, fraud) [...]
Richard Eurich Says:

December 7th, 2009 at 6:33 pm

The mobile payments space is really interesting, and is definitely a huge opportunity. But Mr. Dorsey is not the first company to make a mobile payments product.

A number of companies already make software like this for the iPhone. AppNinjas makes an App called iSwipe that let’s you accept credit card payments on your iPhone, and that has worked great for me since the summer. Here is the link:

http://appninjas.com/iswipe/

blendahtom Reply:
December 7th, 2009 at 6:37 pm
Hey Richard,

I think the differentiator is the fact that it will eventually be a p2p system which is where it gets quite disruptive
blendahtom´s last blog ..BlendahTom: RT @dannysullivan: Google Launches Real Time Search, http://bit.ly/5oaze3
Lito|TheFilipinoEntrepreneur.Com Says:

December 11th, 2009 at 9:29 am

This technology is great specially to those small businesses or self-employed individuals for charging their clients thru credit cards. But even though this technology is a big help, it looks like it is prone to credit card fraud.
Lito|TheFilipinoEntrepreneur.Com´s last blog ..Tony Tan Caktiong’s Say About His Company’s Jollibee Brand
Earl Laughinghouse Says:

December 23rd, 2009 at 10:37 am

Our small dry carpet cleaning business has been looking for this type of technology for use with our iphones. I’m excited about the application. We are always looking for new inovations and technology to improve our market postion. A simple swipe device to use out in the field to save time and money. Not to mention it looks very impressive to our clients. I look forward to hearing more about the product. Carpet Dry Cleaning of Raleigh, Durham, Cary, Chapel Hill Inc., http://www.carpetdryclean.com, 1-877-265-1233.