With much fanfare recently, Twitter co-founder Jack Dorsey started public testing of a new device, dubbed Square, that attaches to an iPhone and accepts the swipe of a credit card for small business owners.
But the outlook has changed for the start-up that would cater to business owners who can’t deal with the cost or hassles of merchant accounts.
A long-established company in the credit card transactions business will beat Square to market with a smart phone card reader, PAYware Mobile, which also targets low-volume businesses.
A big difference between the two services, industry observers say, is that Square – despite the vaunted Twitter pedigree and venture capital financing – leaves many questions unanswered – particularly the question of fees.
Square offers its service with “no contracts, monthly fees, or hidden costs.” It is uncertain how Square can cover costs by allowing “piggybacking” on its own merchant account, or an unknown alternative.
Typically, merchant account fees can run in the range of 2 to 4 percent per credit card transactions, in addition to other processing fees.
PAYware Mobile, made by San Jose, Calif.-based VeriFone Holdings, boasts that it can save small businesses 30 percent or more in fees. But a merchant account is required, as it is by other companies that already have mobile payment systems, some using similar devices that can be attached to smart phones.
Paul Rasori, senior vice president of global markets for VeriFone, said the VeriFone device will be ready for market by January.
“We’re pretty much ready to go to market,” Rasori told the St. Louis Post-Dispatch. “This is the real deal.”
Competitors and skepticism over its business plan are not the only challenges facing the San Francisco-based Square start-up. There is also a brewing issue over the device’s patent filed by a former member of Square’s founding team.
Bob Morley, an associate professor of electrical engineering at Washington University, worked with Dorsey and Dorsey’s partner, Jim McKelvey, earlier this year and has applied for a patent on the device. But after months of negotiations over his compensation fell through, Morley went his own way.
Now Square says it will use something different for credit card reading, raising potential legal issues over the mobile-payment device’s patent.
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