Square's On-the-Go iPhone Credit Card Scanner Will Cost $1
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If it was profitable to make it easy to get a merchant account it seems that this market is developed enough that it would have figured it out by now.
Square makes it sound like they are effectively "merchant accounts for everyone" Makes me wonder what they have figured out on the fraud prevention side that nobody else has.
They're willing to take a different approach to risk management. AFAIK merchant account providers only deal with really-low-risk customers - established businesses - and they don't have to invest in fraud detection/mangement because they just pass all the chargebacks along to the merchants. Square will be accepting significant risk; when they get a chargeback they can try to take back the money from the recipient via ACH, but in many cases it'll already be gone and Square will have to eat it. We can expect Square to evolve the same hypersensitivity to fraud as PayPal, freezing accounts (aka stealing people's money) at the slightest provocation.
If you're a merchant bank, the smallest thing you can profitably target is a small business, so even a handful of significant bad accounts will do bad things to your bottom line.
Assuming that the potential customers of this service are not trying to commit fraud, and that each one of those customers is doing a relatively low amount of transactions, Square could put this device in the hands of enough people that the aggregate chargeback percentage would still be low enough to be profitable.
This will not end well.
Unfortunately, there is a reason why getting a merchant account is a pain in the ass. The bank doesn't want the risk (for good reason).
The thing about Square isn't the device... it's the service. So when things go poorly, they will be the ones that have to foot the bill. If they open things up too widely, then they will be exposing themselves to huge risk.
To step back a bit: I love how elegantly Square has adapted the market's current de facto e-payment option, but I have to wonder if that's really the way forward. If Square is really in it for the long haul, they'll probably do a Netflix: build a solid business on applying good UX to the current technology, then use that leverage to pioneer in the next paradigm.
Not only that, I remember hearing years ago about a scam where a cashier had a PDA and was swiping the cards twice that came through the register, once in the register and once in a card reader attached to the PDA.
That's already a risk every time your card leaves your sight. The details on the strip aren't much more than what's on the front of the card. I know I had access to people's cards back when I worked retail. The store-copy of receipts had full card number, name, and expiration date. This device is the least of your security worries when it comes to a credit card.
The details on the strip aren't much more than what's on the front of the card.
The magnetic stripe gives you Track 2 data, which you can't read of the card without a machine.
There is already a high degree of trust there, and certainly anyone who understands what reverse engineering a dongle entails also understands why the alternatives are equally vulnerable to fraud.
Theres no doubt that the concept and execution of square is ahead of the curve, but there certainly exists an array of intangibles that may prevent it from gaining critical mass.
Edit: Not that I don't like this idea as a business invention, because it really does ease taking payments for service-based companies.
> Beth Robertson, the director of payments research for Javelin Strategy and Research of Pleasanton, Calif., said that if Square is able to allow merchants and consumers to accept card payments without a conventional merchant account, that may be a bigger selling point for the system than the technology itself.
http://www.google.com/gwt/x?oe=UTF-8&client=safari&q...
> The app, as Kevin says, will even upload GPS information, so you can make sure that payments are happening in the right place.
Isn't that called PayPal? Square is PayPal, but on the iPhone; it doesn't seem hard to understand. And it's surprising that PayPal themselves missed this opportunity, given that they started on the Palm.
> Just as Napster allowed people to directly share music online, PayPal enables people to exchange money instantly without having to open expensive merchant accounts to accept credit cards. Yet to Levchin's surprise, advanced cryptography has had little to do with PayPal's success. Rather, the company's rapid adoption by millions of small businesses and individuals operating chiefly on Internet auction site eBay is largely credited to Levchin's more recent obsession: developing financial surveillance software that closely monitors PayPal's customers and almost instantly alerts both the company and law enforcement officials to any suspicious account activity. "We mine millions and millions of transactions in real time," Levchin says.
That's not saying much about fraud detection systems then. Seems like every other day there is some story about someone whose PayPal account was frozen without any chance for appeal or even a solid stated reason as to why it was frozen.
The other problem is that Square accepts anyone. The reason its difficult to get a merchant account through other payment processors is because chargebacks ARE EXPENSIVE. (payment processors will not accept a merchant that is above a 2% chargeback rate). This means that Square will be susceptible to a larger amount of chargebacks (which means that most of their angel funding will likely be in an escrow account to protect against chargebacks).
Great idea but we'll see how these issues are handled.
"Read payment cards from any device with an audio input jack, including your mobile phone."
From the image on their page, the reader is using a 4-pole 3.5 mm plug, which might mean it's powered from the host device. If not, I guess it needs a coin cell which would have to be replacable unless the entire reader is disposable.
I searched for a pin-out of the headphone jack, and it seems the 4th pole is for the microphone which (of course!) is used to send the credit card data. Is their app playing some sound, thus allowing the reader to power itself from the audio outputs?
If only I could have gone to a website on my phone and paid by paypal. Or phoned someone and asked them to go to a website and pay for me, and the cashier give me the receipt as it happens.
Guess that's as much down to the garage as paypal though, eh?
http://www.readwriteweb.com/start/images/square_usage_feb10....
The square device is on the wrong side of the iPhone? Shouldn't it be plugged in to the headphone jack?