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How the Square mobile payment service will work

By Eliot Van Buskirk
A forthcoming app called Square vows to help make credit card payments via smartphones.
A forthcoming app called Square vows to help make credit card payments via smartphones.
  • Twitter creator Jack Dorsey's Square application is like a smartphone PayPal for credit cards
  • Square wants to give away the credit card-reading dongles away for free to merchants
  • Square also will make it easier for people to buy stuff from each other, say via Craigslist
  • The app is targeted at small business owners who don't want credit card merchant accounts

(Wired) -- Twitter creator Jack Dorsey's Square application, which is like a smartphone PayPal for credit cards, has attracted lots of warranted attention for its potential to enable peer-to-peer and merchant credit card transactions in the real world far beyond what's capable today in most countries.

Since Tuesday's official announcement, details have emerged to flesh out how this service will look and how it will soon affect how you buy and sell stuff.

Here's the latest on the disruptive Square P2P payment system, currently in limited beta and set to roll out "to everyone" in early 2010:

Free Dongles

Square wants to give away the credit card-reading dongles away for free to merchants so they can accept credit card payment on their smartphones (or iPod Touches), Dorsey told the LA Times.

Free dongles would make people more likely to sign up for seller accounts, especially if they like to sell stuff in public or through classified sites such as...


In addition to local merchants such as the San Francisco coffee vendor Sightglass Coffee featured in Square's official screen shots (and in which Dorsey is an investor), Square will make it easier for ordinary people to buy stuff from each other.

Say you're buying a sofa for a few hundred dollars through Craigslist. Rather than bringing a stack of cash to a stranger's apartment, you might bring along a credit card to swipe in the seller's Square dongle and be done with it. (You still might want to check over the dongle first to make sure it hasn't been tampered with to record your magnetic strip.)

Alyssa Milano

Alyssa Milano, set to appear in the ABC comedy series Romantically Challenged next year, joined the Square team as an adviser.

"We added Alyssa to our board of advisers because she has direct and relevant experience in contracts, promotion, distribution, manufacturing, licensing issues, retail, philanthropy, and a deep insight into present and future technologies and social movements around them," said Dorsey in a statement distributed by Milano's publicist. "Alyssa brings a clarifying presence to everything we do."

Milano's qualifying experience for advising Square, according to the announcement, includes her presidency of the web design firms Celebrity Loop and InterSports, her Touch clothing and jewelery line specializing in creating junior women's sizes of athletic jerseys, and philanthropic work including with UNICEF and The Global Network for Neglected Tropical Disease Control. (Square donates one cent of each transaction to the charity of the buyer's choice.)

Square's Business Model

As a customer, all you need to buy from a Square merchant is a credit, debit or pre-paid card, a finger with which to sign the touchscreen and an e-mail address for the receipt. Giga Om reports that Square might charge sellers $1 for the merchant app, but that would not include transaction fees.

Dorsey wouldn't tell us how those will compare with traditional credit card merchant accounts, because the company is still experimenting with pricing. "We're not giving out rate sheets just yet, as they are in flux until we have a general launch," he said Dorsey in an e-mail. "When we do though, the fees will be completely transparent, simple and upfront."

Square is targeted partially at small business owners who don't want to sign up for full-scale credit card merchant accounts through the usual venues. One perk for them: a built-in loyalty program, so that customers don't need to remember to bring along their stampable card in order to receive a free eleventh coffee, sandwich, bottle of wine, and so on.

That market could present problems for Square, according to Andy Kleitsch, CEO of in-person mobile payment competitor Billing Revolution which lets merchants sell in-person through a mobile site. His take on the service is that "it's for the bottom of the barrel merchants who have a high risk rate [and] can't qualify for real merchant accounts."

Investors do not appear to share Kleitsch's concern. By blog TechCrunch's reckoning, they valued Square at $40 million -- even before it launched.

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Copyright 2011