The introduction of the device that plugs into an ear-Jack (Dorsey) got a lot of hype.  I immediately  noted that nothing was said about the security of the device, i.e. what type of encryption and when, is it PCI "Compliant" (let alone "Certified." Now that the dust has settled a bit, people are starting to see that this particular empire wears no clothes...



'Square' Peg, Round Hole: Jack Dorsey's solution for payment processing

Summary



Lots of folks have great ideas that don't necessarily translate into viable products and services. Some serial entrepreneurs are off to the next thing before fully-baking their current batch of cookies and I think this is the case with Dorsey's payment processing concept. If I were Dorsey, I'd be cooking up a solution for generating some cash for Twitter (revenue).



Analysis



I do not find anything particularly innovative about what Dorsey is proposing. In fact, the technology to do it has been around for a long time. I often spoke about mobile payments as I helped to launch the GSM network at AT&T Wireless. After all, while we were launching the first GSM net here in the U.S., Europeans and others were already using Smartcards/SIMs for mobile banking and payments.



While I do expect mobile payment processing to grow in years to come, I don't think our financial organizations are yet ready to embrace it. While the app might be free to the consumer, it will require the financial community to embrace it and there will be costs to do that.



Dorsey's argument for this is that while nearly all of us have credit cards, they are still difficult for sellers to accept. I don't buy that at all. Particularly when you have services like Paypal - anyone can accept a credit card payment. If I were selling $2,000 glass sinks, I'd already be equipped to ring up any customers order anytime, anywhere.



If I were Dorsey, I'd be keenly focused on shaking some bucks out of the Twitter tree. ###







Each week PYMNTS.com posts new discussions in our LinkedIn group where we encourage members to weigh in, share their thoughts or propose their own topics.



These discussions are often the product of breaking news or noteworthy events. This week the big story was the buzz around Twitter co-founder Jack Dorsey's hush-hush startup, aka Squirrel, has a new name and potential game-changing product -- Square. The company has launched a Web site for its iPhone payment system, which appears to still be in private beta testing.



Q: What do you think about the release of the new mobile payments device, Square?



A: Great HYPE!!! Where's the substance? Its a mag stripe reader attached to a phone? there's a bunch of those already, been around for years, look at infinite peripherals. I do not understand why you see this as game changing, can you elaborate? Also we have these these regulatory requirements and certifications, simple little things around payment security and device acceptance. One look at this and it screams "SKIMMING DEVICE" to me. This is perfect for those in the hospitality industry (where most of the skimming happens) to take a credit card, swipe it, and then save the data for later personal use or heck just sell it Poland (sorry Poland but we all know its true). You see if I buy this device for $60. and skim one card and sell it then I've paid for the device. That's a great business plan.



If square is fronting the merchant account and taking the risk that now becomes a better business model for the fraudsters. Without the controls in place for rating and qualifying a business (even small mobile merchants) your opening doors for creative fraud. Within 10 seconds I can accept credit cards? WOW let's see if I open 1 square merchant account every minute for one hour that's 60 merchant accounts I can swipe a couple hundred cards in that same hour and perhaps some people will catch the charge before I get my money but surely some will not. As long as I keep the charges small (under $40) I could make 4k per merchant account. That's 100k I could charge in 1 hour and lets say I get 1/3 of that. Wow I could make $30k for one hours work and guess what in 1 months time when the consumers catch on I'll be gone and Square will be left with the bill.



P.S. Not sure this truely qualify's as card present transaction, needs to be a certified device for that? That's really all the squear thingy could do. There's lots of other apps on the iPhone for taking credit cards already.



As for the business model, well that is a game changer, for the fraudsters!



— Steve McRae, President | Growth + Profit, Inc.