It's Hip to Be Square: Processing Credit Cards On Your Phone

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It’s safe to say, of late, you can do just about everything but brush your teeth with an iPhone. You’re always wondering what else the creatives at Apple are going to think of next. Well, the next marvel is credit card processing using any credit card with your phone!

In December 2009, Jack Dorsey, the founder of Twitter, launched a new application that allows iPhone users to process credit cards using their phones. Under a new venture, called Square, Dorsey hopes to take credit card processing to a new mobile high.

To use the credit card processor, the user needs to attach a specialized dongle to the headphone jack of the iPhone, (it even works with an iPod touch, as it uses the wireless function to process the transaction). Then, using a specialized application, the user can swipe a credit card through the dongle and process the charge. (Food for thought — if it uses the headphone jack to attach to...will it soon be available for any mobile phone that uses wireless?)

As Dorsey plans to give the actual dongles away — You have to ask “how is he going to make money through this?” Well it will be through the application required to process the credit card transaction. App downloads are a big business in the Apple world, and Dorsey has been quoted to say he might charge $1 per application download in order to make money on his Square idea.

The guys that will benefit the most with this type of application are small businesses that are often forced to go on a cash basis for sales, as they cannot afford to pay the transactional costs associated with having a card machine. Think street vendors, seasonal businesses, or businesses that do not have a traditional brick and mortar location. The attic clearout in the next street garden may be Square run!

• As with anything, each comes with its fair share of disadvantages or drawbacks.
   
• Credit card processing is only available if the network is available. Go out of network and one is out of luck. While a business owner might look at each sale as “make or break,” it may not constitute an emergency call. Who verifies those emergency calls when the cell phone advertises “emergency calls only”?
   
• What about the criminal element? As the device does not require much verification for the transaction to take place, are we increasing credit card fraud? What about con artists starting sham businesses with the purpose of running up unauthorized charges for the day?
   
• Could a third party steal the credit card processing information as it is being processed? Could blue-tooth technology or other method allow the theft of mobile credit card processing data? Just like the fear at ATM machines, this iPhone or iPod taking payment actually belongs to a person that may have tampered with the device in order to collect your personal information.
   
• The dongle is attached at the bottom of the cell phone. It might get damaged, fall out, or be stolen. While the inconvenience to a headphone user would be minimal, the impact to a small business owner about to lose their day’s credit card sales could be phenomenal.

How much of an impact will Square actually make in the mobile phone world? It is hard to say, since the focus is mostly on the small business owner right now. Competition is usually a good thing, driving companies to improve their products, lower prices, or do something else to maintain or grow their market share.

In January 2010, another company called Mophie, was scheduled to launch a new cell phone that has a credit card reader included at the bottom of their IPhone. Using third party software, this reader will also allow the cell phone owner to process credit cards over their phone. As the reader is an integrated part of the cell phone, it appears that damage to the reading device is minimized.

What will the future of credit card processing hold for you?