The system involves a small dongle that plugs into the headphone jack of the iPhone or iPod Touch and this is used to swipe acredit card. The app then securely sends the information over the air and the end user has to sign the device with their finger to complete the transaction. A receipt (with optional geotagging) is then sent to the customer via e-mail or SMS and funds are withdrawn like normal.
This has the potential to be a major disruptor because the established credit card system can be a pain for small businesses or individual sellers because of the revenue cut the big guys take. Square will be taking a percentage of the deals, but it will be considerably less than the hoops you’d have to jump through to set up a regular credit card system. Square said it doesn’t keep any of the customers’ information and that it is compliant with all the relevant security regulations regarding this type of service.
To be honest, this wouldn’t be getting as much hype if it wasn’t for founder Jack Dorsey, who also co-created Twitter. But I do think this is an interesting service that points to a future where much of your transactions can be handled with a mobile phone. Others are looking at this space too, as Verifone is also introducing a similar way to use phones to accept credit cards. Of the two, Square has the Internet credibility but Verifone is much larger and may be able to push its solution further.
I’m already over credit cards, let’s just get NFC technology in all the phones and I’ll gladly use my phone as my main payment method. Until then, check out the video below for an example of Square in action.
[Via Fast Company]