New Mobile Payment System Aimed At Small Businesses

December 5, 2009

Is it hip to be square again? Maybe according to Twitter co-founder Jack Dorsey. His new startup, called Square, is a mobile payments (credit card processing) system that appeals to small businesses. But is he targeting the right customers?

I think we’ve all heard rumors of a credit card reader for the iPhone—and this is it. A small, white plastic cube plugs into the audio jack of an iPhone or laptop (with software planned for Blackberry and Android). It scans the card, geotags the transaction and emails a receipt to the buyer. And just to be clear, Square is an app for merchants, not a way for individuals to electronically zap their bucks into the nearest Starbucks to pay for their latte.

And that may be the problem, too—because the product isn’t designed for big retailers like Starbucks. Its users will be smaller vendors, “who don’t qualify for accounts with traditional credit card processors because the would be deemed ‘high risk’ by these companies,” as Read Write Web puts it. According to the CEO of competitor Billing Revolution, Andy Kleitsch, that’s not going to be enough of a market, and bigger vendors just aren’t going to be interested in the product.

RWW also notes the potential for fraud:

Square will also have to deal with potential fraud. While we don’t know the exact details about how Square will operate, chances are that the company will have to keep a large reserve in an escrow account with the credit card processing companies that power Square’s back-end. Anybody who sits on a pile of stolen credit cards, Kleitsch pointed out, could use Square to run up charges on these accounts. Once the defrauded credit card owners dispute these charges, Square could be left with a large bill to pay.

However, one would hope they’ve taken precautions against this.

While Square’s website contends that processing card payments is “difficult, requiring long applications, expensive hardware, and an overly complex experience,” Kleitsch says that a payment terminal is typically free, with $20/month + 2% of all transactions as the monthly fee for the service. (While Square’s service is free, last time I checked, an iPhone runs $200, plus Square’s hardware investment, plus a monthly fee—AT&T’s$60 data fee. Ouch—unless you truly already need the iPhone for your business.)

Although one of their examples is of a local coffeeshop (of which Dorsey is a part owner), Dorsey appears to be targeting vendors even smaller than coffeeshops as well—vendors that may or may not have brick-and-mortar establishments, like artists or flower carts (another of the examples on their site).

What do you think? Does Square have the potential to take off—and if so, with small businesses or just micro ones?

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Hacking Ring Indicted For $9 Million Fraud

November 11, 2009

A federal grand jury in Atlanta has indicted eight East Europeans on charges of hacking into a computer network operated by the credit card processing company RBS WorldPay, the U.S. Department of Justice said today.

The 16-count indictment alleges the group used sophisticated hacking techniques to compromise data encryption used by RBS WorldPay to protect customer data on payroll debit cards. Payroll debit cards are used by some companies to pay their employees.

The hacking ring allegedly raised the account limits on compromised accounts, and then provided a network of "cashers" with 44 counterfeit payroll debit cards, which were used to withdraw more than $9 million from more than 2,100 ATMs in at least 289 cites worldwide, including cities in the U.S., Russia, Ukraine, Estonia, Italy, Hong Kong, Japan and Canada. The $9 million loss occurred within less than 12 hours.

The hackers then attempted to destroy data on the card processing network to hide their hacking activity. The indictment alleges that the "cashers" were allowed to keep 30 to 50 percent of the money, but sent the rest back to the leaders of the hacking ring.

Lanny-Breuer "The charges brought against this highly sophisticated international hacking ring were possible only because of unprecedented international cooperation with our law enforcement partners, particularly between the United States and Estonia," said Assistant Attorney General of the Criminal Division Lanny A. Breuer.

"Through our close cooperation, both nations have demonstrated our commitment to identifying sophisticated attacks on U.S. financial networks that are directed and operated from overseas and our commitment to bringing the perpetrators to justice."

Some of the hackers if convicted in the U.S. could be sentenced to up to 20 years in prison.