Jack Dorsey, the co-founder of that little thing called Twitter, is showing off his latest project, and Square is trying to turn iPhones into a mobile payment hub for merchants. It's a very interesting idea, but, like Twitter, I'm wondering how it's going to make real money.The idea sounds simple and quite amazing: Square is providing merchants with hardware that integrates with the iPhone's audio input jack for swiping credit cards. There are no contracts or monthly fees, customers can get their receipts e-mailed or eventually texted to them, and frequent customers can even get virtual reward cards that can, for example, give a customer a free cup of coffee on their tenth purchase. The hardware is going to offer some security by enabling photo verification, and a video demonstration over on TechCrunch (embedded below) shows it can potentially be a quick way for businesses to start accepting credit cards. The company's also looking for Android and BlackBerry developers, so it's safe to assume this will work with a variety of handsets.
A lot of this sounds good but there are plenty of questions that arise. The most pressing is security, both on the back end and at the point of sale. In the video demo, the merchant slides the credit card with their iPhone and then passes it over to the customer to sign it. Beyond the wear and tear on the device, what's to stop an unscrupulous customer from just running out the store with the device? I suppose a tether or stand could solve this, but then you sort of lose the flexibility that a system like this offers.
On its Web site, Square talks about having security because of a photo verification process, but I'm more concerned about where the customer information is stored, and how it's transmitted. If vendors are able to transmit the data over unsecured Wi-Fi, bad guys could have a field day. I'm reaching out to them to get a deeper look into the security issues, and I'm hoping to be proven wrong.
As for the money, I'm still trying to figure out how they're going to generate significant revenues. Mobile point of sale terminals are available and are not really that expensive, but many small businesses or street vendors simply cannot or do not want to pay the transaction fees that accompany these. Square will be giving vendors their hardware, and their Web site says there will be no monthly fees, contracts or hidden costs. Somebody is still going to have to pay the Visa, MasterCard, and American Express-es of the world. This is also an incredibly crowded space filled with well-funded startups and multi-billion giants like Nokia and the credit card companies, so Square definitely has its work cut out.
Wow. I just realized I have become a negative Nancy over a barely-unveiled product and company. There will definitely be challenges to overcome, but I'm sure Square is well aware of these issues. It will be interesting to watch because it's always fun to see innovative folks tackle these large types of problems. I'll be sure to keep an eye on this project.