One of Twitter’s founders, Jack Dorsey, just launched Square. It’s yet another company that attempts to tackle the issue of making mobile payments work, but instead of trying to become a completely new payment processor, they are depending on the existing infrastructure of plastic credit cards built by Visa, MasterCard and American Express. People who want to accept payments via Square need to purchase a small magnetic card reader that they can plug into the audio jack of their mobile device. Currently only the iPhone is supported, but there are plans to release an Android and BlackBerry version. One then swipes their credit card across this magnetic card reader, that data is then translated into an audio signal, and finally that sound is feed into a payment system.
Sounds amazing, on paper.
Square is competing with companies who already have existing payment infrastructure in place. Ever walk into a shop and use your credit card? Someone made the machine that the person at the cash register uses to swipe your card. Yes, purchasing one of those tiny magnetic card readers and an iPod Touch is cheaper than buying a full blown payment system, as GigaOM has suggested, but if the idea of Square is to make peer to peer payments available then you have to assume that everyone is going to purchase one of those tiny little magnetic card readers.
What’s to stop a disgruntled employee coming into work one day with his own jailbroken iPod Touch and skimming your credit card details? Or a con artist on the street selling goods? How are you supposed to trust the people you’re allowing to swipe your credit card?
Then there is the issue that this system requires you to already own a credit card. Most people in the USA have one, but that isn’t the case in other countries, and it most certainly isn’t the case for people under 18 who hang out in malls all day buying clothes, Red Bull and whatever it is young people buy. Square has already managed to raise $10 million in funding according to TechCrunch, but as far as I’m concerned they’re already dead in the water. Banks are already starting to clue in and launch mobile applications; Scotiabank just launched one this week, Nat West relesaed one last week, and USAA even came out with an iPhone application over the summer that scans checks.
In 2010, and most certainly by 2011, mobile phones will have NFC chips installed by default and paying for things will require nothing more than a simple tap. But forget about the future, today in Africa you can already buy practically anything with a simple text message and in Denmark you can use text messages to gain access to public toilets. Will someone end up buying Square because the user experience is pretty? Possibly, but I wouldn’t count on it.