Square Inc. delays FST as it's not "fully baked"

Jack Dorsey, founder of Square Inc.

Jack Dorsey, founder and CEO of Square Inc., the hugely hyped payments start-up, has announced that the release of its product which transforms mobile phones into payment card readers is going to be delayed once again, admitting that "we've let our excitement get the best of us and have released parts of Square before they were fully baked."

In December 2009, Mr. Dorsey unveiled his new company amid a flurry of excitement: it appeared as though Square Inc.'s technology could revolutionise the way in which individuals receive payments for their work, via their mobile phones.

Hardware shortages at the beginning of 2010 led to an initial delay in the release of the mobile payments reader, but the company reassured customers that this would be rectified and now says that the issue has been resolved with Square Inc.'s manufacturers in China.

Customers have now, however, been told once again that they will not be receiving the product in a letter written to them by Mr. Dorsey, in which he detailed the problems and setbacks Square Inc is experiencing. 

"The way we are handling the risk of chargebacks and fraud is through transaction limits, but we have received feedback that those limits are too low" wrote Mr. Dorsey. "We are rethinking and expanding our underwriting infrastructure to address this issue."

Square Inc. has been gradually expanding a pilot of its service. The company provides users with a square-shaped card reader that attaches to a smart phone's audio-input jack. It charges 2.75 percent of the sale plus US$0.15 for swiped transactions and 3.75 percent plus US$0.15 for keyed-in, or "card-not-present," transactions.

Complexities of the FST industry

In an interview with Payments Source, Mr. Dorsey said that Square Inc. is planning on shipping the device out to general users this summer now. However, in his letter, Mr. Dorsey wrote: "We thank you for your continued patience...and for allowing us the time to get it right" without making any mention of how long it might take the company to "get it right."

For many payment analysts, the news that Square Inc. is delaying the release of its mobile payments technology once again, is far from a surprise, as many believed that Square Inc. rushed into the FST industry and failed to take into account the complexities of the business.  

Aaron McPherson, a practice director with research firm IDC Financial Insights in the US said that Square Inc. "totally underestimated the market."

It does seem that Square Inc. may be discovering that the creation of a mobile payments reader is not as easy as it may have initially appeared and, sadly, it seems the hype around the company may have been a little hasty.

Mr. Dorsey may have cut off more than he can chew and it seems unlikely that Square Inc's success will match that of social networking phenomenon Twitter, which Mr. Dorsey founded and launched in 2006.

"We announced Square with the phrase: "0 to US$60 in under 10 seconds" began Mr. Dorsey's letter, unfortunately highlighting all that Square Inc. promised and has yet to deliver.

Related links:

Mobile payments – a business case for banks | Mobile banking users doubling every year | A cashless society | Building a mobile payment model | Why should banks collaborate with the telecoms operators | Building a virtual bank

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