Cyrus in The Economist: A mobile payment system: That will do nicely, sir

The Economist, December 9 2009:

Street traders can now accept credit cards—so long as you trust them

THE economy might be cashless but people still use the stuff, if only to reimburse a colleague who bought their lunch or pay for a newspaper from a street vendor. Now a new device called Square that was launched on December 4th will enable individuals and small businesses to accept electronic payments by turning any device with an audio-input jack—such as a computer or a mobile phone—into a credit-card terminal.

Square consists of a small plastic cube, slightly larger than a sugar lump, with an audio plug attached. The cube has a slot through which the magnetic stripe of a credit card can be slid. When the cube is plugged into an iPhone, it reads the card number and sends it (in the form of an audio signal) to a piece of software on the phone that then encrypts it and authorises the payment over the internet. (If the phone has no internet connection, the data can be stored until one can be established later.) The customer signs for the transaction using a fingertip on the phone’s touch-screen.

Once the transaction has been approved, the funds are transferred into the bank account of the phone’s owner. The customer can chose to receive a receipt by e-mail or text message. If he chooses e-mail, the receipt will include an electronic map showing where the purchase was made, along with a facsimile of the signature. Customers can even take a photo of the product to remind themselves what it was they bought.

America lags behind East Asia, where people commonly use mobile payment systems to buy items at train stations and convenience stores with the swipe of a mobile phone. But Americans are accustomed to using PayPal to make secure online payments, and some people use Obopay to transfer money via text message. Square is trying to simplify the process and tap into this new market.

Currently, only 100 Squares exist. They are being tested by small retailers, including clothing and coffee shops, in San Francisco, St Louis, Los Angeles and New York. But Square could, in principle, be used by almost anyone (including consumers) to make and receive secure payments easily. For now, the device only works on the iPhone. But because it uses the audio jack, it should be fairly easy to make it work on other devices, too, such as BlackBerry and Android handsets and desktop and laptop PCs.

Jack Dorsey, one of the co-founders of Twitter, who is also a co-founder of Square, reckons that it will enable new businesses to be set up quickly. He says, “I can buy [an iPod touch] for $200, get the app and I’m in business. I don’t need a contract with AT&T or anything. I’m in business.” He says the Square hardware will be free and the software will probably cost about $1. Square will make money by taking a cut of every transaction processed.

Square can only accept credit cards affiliated with American banks, but that may change over the coming months. Future versions of the software will also support foreign currencies and the ability to include a tip in the payment.

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