Back in 2006, a man named Jack Dorsey revolutionized online social networking with the creation of Twitter. Practically every twentysomething I know has one of these ubiquitous pages, through which quotidian activities are broken down into 140 character bites of information. Dorsey suddenly became a demigod of the digital age. Now, his new venture promises to completely change the world of credit card payments as we know it. He’s kicking off a start-up venture called Square. Square’s first product is a tiny product that plugs into the headphone jack of an iPhone and turns the device into a mobile payment processing unit. The cube could theoretically make it easier for any iPhone user to make or receive credit card transactions, whether they are selling handmade items at a street fair or settling up a dinner tab at a restaurant with a friend.
Dorsey, who has remained on as Twitter’s chairman since turning over the reins to a new CEO back in October 2008, claims to be catering to the needs of small business owners frustrated by troubles with accepting credit card payments. After a brainstorming session, Dorsey and a friend decided to pursue an avenue through which the users of iPhones and other small mobile devices could start accepting credit and debit card payments: a card reader that could hook up to a cellular phone. From there, Dorsey and Co. came up with the idea of a widget that plugged into the standard audio jack of many different small computer electronics. Laptop computers and many cell phones all have audio jacks, so that became a natural progression of the idea.
It’s not that there are no current options for individuals to accept credit card payments: they just are not very ideal. The proprietary payment system of online auction site eBay, PayPal, works fine for those looking to carry out online transactions. There are also the iSwipe and Credit Card Terminal apps for the iPhone that facilitate mobile transactions. Plus, VeriFone is planning to roll out a similar service to Square early next year, called PayWare Mobile. This will help small businesses carry out plastic transactions with a small mobile device.
The major difference between all these and Square is that a business must necessarily have its own merchant account with a credit card company to use any of them. Square will shake things up by holding its own merchant account, and thereby taking responsibility for any fraud or misuse that might occur. Therefore, anyone can use the service: Craigslist sellers, small businesses like cafes and coffee shops, and grandmothers who want an easy way to give their grandkids one hundred bucks for their birthday or Christmas.
The cube is also patently easy to use. You just swipe the card of your choice through a slit in its side, at which point your card number is converted into an audio signal to be transmitted over the iPhone through the audio jack into which the cube is plugged. Software installed in the phone then decodes that signal and transmits the information about the transaction to Square’s servers over the cellphone network in order to authorize the purchase as it would regularly be. The information is safely encrypted by the iPhone before it is sent out, and the phone retains no “memory” of the transaction. To complete the purchase, the customer in question can simply “sign” for the sale by using a finger on the iPhone’s touch screen.
Although the cube is currently only usable with iPhone technology, Dorsey is optimistic that there will soon be a compatible equivalent for Google’s Android software (used on the popular Verizon Droid phone). About one hundred cubes are currently being tried out in major metro areas, with the first shipment meant for public consumption set to be delivered in early 2010. The terminals themselves are free; Square will make money on transaction fees paid by those accepting payments. Ideally, Dorsey says, Square will soon come up with a software-only option that eliminates the need for the cube altogether.
Although the cube is being touted far and wide as a way for consumers to save time and money on credit card transactions, there are those who raise valid doubts about the gizmo and its uses. Competitor Verifone, for instance, has been quoted as saying that even encrypted data poses a security risk when it is being transmitted over the iPhone network. Also, a Verifone spokesperson questioned Square’s decision to not require each user to create a separate merchant account, comparing this to letting one’s neighbor use their checking account. But these doubts will likely do little to dampen enthusiasm for a method of “democratizing” credit card payments, which have long been available solely to business owners.
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