Carpadium Consulting

There have been rumours for a while now that @jack from Twitter was working on a new payments venture. Well, it seems that those rumours are true with today’s announcement of SquareUp.

The home page has some information about what they are doing, but the service is in soft-launch / invite-only mode at the moment so full details are not yet available.

Straight away, SquareUp looks cool, and from what limited information is available on the site, it looks like it has the potential to shake-up the way small businesses work with credit cards to accept payments.

Two things stand out. Firstly, it looks like it is designed only for card-present transactions (as far as I can tell), and secondly, it uses a magnetic stripe reader to acquire the card details. The first point means that its not likely SquareUp can be used for online payments, and the second point will probably mean that it does not handle chip cards.

However, this does not mean the system is without a security overlay. One neat feature is that it supports a form of photo id check. When a merchant accepts a payment, the iPhone application shows them a photo of the cardholder, which they can use to verify against the payee. I have to assume that this only works for cardholders that have pre-registered a photo with SquareUp.

To some extent (but certainly not all), this gets around the need to use a chip card, although I wonder what the card schemes will have to say about this as they roll out chip cards and readers everywhere.

One final note about SquareUp that is specifically relevant to the Australian market (although I have no information about plans to roll-out the service here) is what it might look like against the proposed MAMBO payments service.

Is this another payments innovation that the big banks should take notice of, or something with a limited niche for use by small businesses currently lacking in ability to work with credit card payments?

My first impression is that it will certainly be successful in that niche, however you have to wonder what they might have up there sleeve. If we have learnt only one thing from the history of Twitter its that they understand how to build a platform.

M@

Update 1: Here’s some words from the Man himself. Pretty much confirms my initial thoughts. Still no CNP option, as far as I can tell.

There are a few agencies reporting today on the news that Visa is mandating that credit cards will need to be chip-and-pin enabled by 2013.

While it’s obviously a good thing to improve card security, Australia actually has pretty low card fraud by World standards (although it is on the rise, and in some areas more than others). Because of these relatively low levels of fraud, our Banks have been a little slow to fully roll out new security measures. What has been standard in the UK for some years is only now just becoming standard in Australia. The reason for this is simple: Banks only ever spend on fraud reduction an amount less than they are losing in fraud.

What I find particularly interesting about this announcement is that it won’t really do too much to stop one of the main pain points: card-not-present fraud. Chips are great when you have a chip reader at the point of sale, but they don’t do too much when you don’t. The obvious example of card-not-present transactions is Internet commerce. Chip cards don’t help much to stop fraud here, unless you have some extra countermeasures. And that starts to get a little tricky in terms of cost, and not least of all in terms of the end user’s experience.

So, while this is a good step forward, it’s definitely not a panacea for all credit card security.

M@