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Amidst Rising Competition, Square Launches

I can’t help but notice the degree to which — from the time I first waxed eloquent about Square, a San Francisco-based mobile payments startup, to today, when the company officially launched — the competitive landscape has changed. Many rivals have emerged with their own hardware that converts the iPhone and iPod touch into a mobile payment terminal. These includes upstarts and an incumbent, VeriFone (s pay).

Just to recap, Square is a small magnetic reader that plugs into the headphone jack of an iPhone, an iPod touch (s aapl) or any Android-based (s goog) phone and allows anyone — from a fruit seller at a farmer’s market to a babysitter — to accept a credit card payment. It was co-founded by Jack Dorsey, the guy who created Twitter, and has raised gobs of money from the likes of Khosla Ventures.

The free Square app can be downloaded from the iTunes app store or from the Android Marketplace. Square charges 2.75 percent of every transaction plus 15 cents. In comparison, other payment systems charge 1.79-4 percent of the sale.

When I wrote about Square in December 2009, the reaction to the company was decidedly divided — people loved the idea or hated it. The comment threads were full of vim and vigor, to say the least.

Nevertheless, what I liked about Square then and still like about it now is the way it’s shaking up our moribund and hidebound payments system here in the U.S. Someday we’ll pay using our cell phones like, say, the Japanese, but as a country we’re not there yet. We like paying with credit cards, and Square is one of the more simpler solutions I’ve seen enabling us to do so.

Here is Square working on an iPad, in a sense giving the traditional Point of Sale Devices a run for its money.

That said, I don’t think Square can get ahead just by offering what it does now: a simple hardware reader. It will need to distinguish itself from a growing number of competitors using software and social networking as a way to stand out.

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7 Responses to “Amidst Rising Competition, Square Launches”

  1. I would make a bet that this is a software play and not a hardware one. Forget the mag reader and think of the software with the ability to do NFC both ways! But while we transition from the magstripe to NFC there would be time to perfect the wallet/terminal software. All the SNS hooks will be there when the time comes.

    • Luis

      I am with you on this one and am totally convinced that these guys are building somewhat of a bigger play that what they are showing. I think your guess/prognosis makes perfect sense.

  2. One of their biggest differentiators is their focus on the user experience with beautiful graphics and design. Apple does it with their products and going for the “what would it look like if Apple did this” approach is a great way to stand out, particularly since they’re targeting the iPhone and iPad.

    With the benefit of hindsight, it would be interesting to know what the competitive landscape would’ve looked like if they’d followed Apple’s approach to announcements – secrecy until the product is finished and ready to ship.

  3. Om, I have to say, I have much higher expectations for Square. A free app, a simple system, specific, reasonable fees and especially the fact that no merchant account is required — anyone can accept credit cards!

    Plus, they are already on the iPhone and Android, and I think that’s where all the action will be. I also am going to assume they can utilize their past work and incoporate social functions, fully real-time transactions and hyperlocal services.

    I guess we’ll see. It’s probably going to help propel the US into smartphone payments, even if Square itself fails. Either way, we win;-)

    • Brian

      I just think they need to take a step forward by building more social intelligence in their system. I am positive on the company as well and I intend to get a square for myself as well.