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WWDC 2010: Square's first steps

Square has already made a big splash with its launch -- the company, founded by Jim McKelvey, Jack Dorsey (formerly of Twitter), and Tristan O'Tierney, has created a system for accepting credit card payments through the iPhone. After a lot of secrecy and hype, the app launched on the iPad a while back. While the Square Reader (a little doohickey you can plug in the headphone port of an iOS device to swipe credit cards in) is still hard to find, we got one directly from O'Tierney himself at WWDC last week.

It wasn't free -- he charged us a buck for it (and for the privilege of seeing a demo), taken by swiping my card through the reader, having me sign on the touchscreen, and emailing me a receipt in a process that was quick and painless. Well, mostly painless -- you have to hand it to a company whose demo is dependent on you giving them a buck.

But I guess O'Tierney paid me back with his time -- you'll find an interview after the link below in which he tells me the weirdest use of the reader he's seen, what their biggest fraud issue has been so far, and what the company plans to do next.

TUAW: You've started up the service, and it's live. How has it been doing so far?

Tristan O'Tierney, Co-founder and Client Lead, Square: People love it. There's a couple of big issues we're still working through. A lot of people haven't gotten their Square Reader yet.

Well, explain the model that you landed on, that you actually decided to go with.

The model. Well, in terms of just how the company works, when we started the company out, Jim basically was trying to sell some of his glassware from his company in St. Louis, and had trouble taking American Express. He just kind of brought that up to Jack. At the time, Jim, Jack and I were all kind of all free, and looking for a project to start. And we realized how hard it was to take payments.

The idea for the swiper kind of came a little later. When we arrived at the problem that we wanted to make it easy for anybody to take credit cards, we saw quite quickly that typing in the card number was just not a practical solution. At the time, Apple didn't have access to the hardware port. We were thinking, well, the headphone port can be used to transmit audio, audio can be turned into data, same as the modem, in essence. So we started working on the idea of passing data in through the audio port. And after a little bit of refinement, Jim ended up engineering this marvelous little device here, which we actually decided to stay with even after the dock port was opened up. This has got no battery, it's got no chips in it, no moving parts, it's pretty cheap to make and this works on Android, too. The advantages started to outweigh the disadvantages so now we're sticking with this.

The app is free, right?

Yup, you can download the app for iPad or iPhone, and it works currently on Nexus One and Droid on the Android side.

We don't care about Android on The Unofficial Apple Weblog. No, just kidding. And it's a per charge basis, right?

That's correct. To take credit cards in the traditional sense, you usually have to have a merchant account. I don't know of many that don't have similar fee structures of signup fees, contracts, monthly fees, cancellation fees, all the things we've grown to hate. And we only have one fee, two fees rather. One for swiping and one for typing in the number. Swiping is 2.75% plus 15 cents, and the keying in is 3.5 and 15 cents.

So the keying in is more dangerous in terms of how you deal with it?

Certainly. If you swipe the card, there's extra data on the card that proves at least that is a copy of the card or the card itself. It's much harder to get raw track data from cards itself, so it at least limits the problem.

So that's the plan you went live with. Since you've gone live, it seems like you've been very popular. You've been having trouble keeping stock?

A lot of people want it and we're still catching up with demand. But we're going to be there really soon. We've got a bunch of these made.

How can people get one if they don't have one?

We do have a few to give out at WWDC, but to get one, you just download the application and sign up. You can't sign up from the website, because we like the idea of proving you have an iPhone, or one of these devices. So we're not necessarily trying to gate signup, but you can't use Square without the app. And you want to provide that experience within the app anyhow, because you want to provide the lowest common denominator through all platforms. If you open up the app and you can't do anything without going to the website, that's going to be a bad experience.

Are you saying, or have you said yet, about how much volume you're seeing go through?

We're not quoting numbers right now.

Are you surprised by what you've seen go through, or is it up to your expectations?

I don't necessarily know whether or not we're meeting or exceeding expectations, but I know that it's definitely a lot. It surprised me, personally. We've got a lot of interest. People certainly want this capability -- it's never been made this easy before.

And one of the interesting things about this is that you explain it to anybody, and suddenly they come up with another use case. There's so many ways to use this -- what are some of the strangest you've seen?

When we announced it back in December, one guy was saying that it seems like with Square I can now get a Zipcar, and start my own cab service by taking payments.

[Laughs] But nobody did that, right?

I don't think anyone actually did that, no.

Can you talk about like some specific weird thing you've seen it used in?

Yeah, I've seen one guy walks around covered in beef jerky head to toe, and uses an iPad to take payments, just walking around the street.

Why would someone pay him? Oh I see, he sells the beef jerky. Ok, that is the weirdest I've ever heard. That might take the cake right there.

In terms of other practical things, I guess I'm having trouble thinking of something specific.

Anything real large volume? Are there businesses who've replaced their merchant accounts with this?

Yeah, we've had pretty big merchants using Square. One of the things that we don't yet have something set up for is that you can only use Square if you take a certain amount of payments, under $100,000. If you make over $100,000 through Square, they consider you a business entity, and you need to get a merchant account, they consider you part of the process.

So there are limits to what you can do with the device. But $100,000 is a lot of money.

Yeah, if you're making more than $100,000 a year through Square, that's probably a different problem for you.

So the beef jerky is the weirdest thing you've seen -- what's the most common? I guess it's food vendors?

That's a great question. Some of the most common I've seen are definitely food carts. A lot of food carts, our product is resonating with, because they're obviously very mobile. We've already had some delivery services popping up using it, so bike couriers and actual food delivery, because also you don't need to carry the receipt and scratch the card number on carbon copy paper or tell the number over the phone, that's usually very a long, arduous process. We've had a lot of craft fair users -- things like Maker Faire and Fanime and things like that. It's been big with that. Farmer's markets.

It's awesome that you're making lots of money with this, but of course anytime you go off the reservation like this, you have to deal with fraud. Any major problems that you've had to deal with already? Obviously, you can't talk about specifics, but how difficult has it been to weed that stuff out and figure it out.

It hasn't been a huge issue for us yet, because most of the people beta testing have been people we know. A huge issue is what most people in the industry call "chargebacks." So say you find something on your card statement that you think you didn't pay for, you call up your card company, tell them, and they send a charge back to the merchant. That ends up being an issue with us.

So yeah if I charge something, what does it look like on my statement?


What we show on your statement is SQ*, and then the name of whoever actually took the payment. So we try to take up very few characters, and then it's just all them.

So it still depends on the user and how they deal with it.

Yeah. The phone number on your bank statement will actually end up going to us, but we can look up the payment based on the amount and the merchant name.

So that's the biggest issue with fraud you've had.

The biggest issue with supposed fraud we have had is people not knowing what this is on my statement. That happens even with normal charges all of the time.

How do you deal with that?

It's mainly a support issue right now, it's not that big yet. We've also got a lot of protection by our payment network, the gateway behind us. So they do a lot of checking for fraud on their side, so they decline payments if they don't think they're coming from valid sources.

So what's the next step for this? What are you planning in the future?

We're still figuring out the next step. We're more of a show, don't tell sort of company, so we're working on some new things, and listening in to user feedback.

Well I was going to say -- what are people requesting? What will you need to look at in the future?

Oh, I see. Well one of the biggest future requests that I can talk about is businesses are obviously very enthusiastic about using it, and we designed the utility for users, too, not just businesses, but we definitely targeted businesses because a $500 iPad 3G with no contract was the cheapest way to take payments. You used to buy a multi-thousand dollar cash register that doesn't even offer card issuing. Our system can replace all that, give you all this great online data that you can download quickly.

Does the app give you other accounting information?

You can take cash payments right now as well, so if you want to accept cash but log the things you buy to track inventory as a percentage of your sales, things like that, our IPad app is set up to do that. It's got a lot more functionality than the iPhone app because of the extra space it entails.

And what are the user requests?

They're asking for the ability to put in their business social security number eqivalent, it's a tax ID number, that lets them have a higher limit to take more payments. So the income goes through the business' bank account and that counts as income for the business, not just an individual. Right now we're launched mostly for personal use, because the limits are still kind of low, and we don't yet allow businesses to enter their tax information, so we're working on that. We're rolling out support for businesses very soon.

We're also working on the client API, which we've also released some support for on Android, and we're working on some stuff for iPhone on that as well.

What kind of things will that let developers do?

The initial use case we're going for is just kind of the simplest, to get something out there for functional use. It will let other applications ask for a payment for a set amount, it'll be able to prefill the description, an attachment image if you like, and once its done with the payment, we'll let you send a callback URL to jump back to the previous application. So if you're a doctor's office, and you want to use your own app to keep track of information and taking payments, that would allow you to send that amount to Square, and Square would already be set up to go to your bank account, you take a payment and then go back to the original app. So for uses like that, other applications that want Square to be the payment gateway.

How much contact have you had with Apple? What do they think about Square?

Apple has had a lot of contact with us. They've been featuring us in an amazing amount of places. The App Store, the new Apps for Work page, in the iOS 4 launch, we've been an iPad app of the week.

It almost seems like they might smell the money coming through their platform and say wait, you can't walk through the iPhone and the iPad without helping us out.

The thing with how our payment system works, or what you can use Square for, is that you can use Square for anything that's not in-app commerce. So as long as you aren't transacting digital goods like downloading an ebook or downloading a comic, downloading an addon to a game, you're fine.

So they're fine as long as you don't touch the in-app purchase money. But everything outside of the iPhone, that's you guys, and they're happy to let you go for that.

Right, and that's because Apple knows that a 30% cut on a physical good would be a rate that's too high for any retail outlet to sustain.

Cool. Thanks very much.

Yeah. Thank you.

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