The company has been attracting attention in the blogosphere since May, when word first emerged that Jack Dorsey, better known for founding the popular Twitter Inc. microblogging service, was exploring a mobile phone payment technology.
Square's Web site went live last week, and Dorsey gave interviews to the TechCrunch blog and the Los Angeles Times. TechCrunch described the introduction of the payment system as an ongoing "private beta."
The Square system uses a cubical card reader that attaches to the audio jack of Apple Inc.'s iPhone.
Though the product appears to be designed for merchants, Square's initial marketing push has focused primarily on how consumers can use it, sometimes even casting its device as a person-to-person payment system. Merchants, however, get little information from those articles or Square's Web site on how the device is set up or what it would cost.
As such, observers have come to see the system as more flash than substance. They say Square ignores pertinent business details — such as whether it adheres to the Payment Card Industry Data Security Standard — to instead talk up Dorsey's success and the allure of the iPhone.
"The play here that's interesting is: 'We have an app for that,' " said Brian Riley, a research director in the bank cards practice at the research firm TowerGroup in Needham, Mass., a unit of Corporate Executive Board Co. "But in the same token: Do you have a PCI-compliant app for that?"
The PCI standard, which governs how companies must protect any payment data they handle, is no trivial concern, he said. The card brands can penalize companies that cannot show that the technology they use meets those guidelines.
Square did not respond to repeated interview requests from American Banker.
Riley said he attempted to sign up online with Square as a merchant, but all the Web site allowed him to do was join a mailing list. Providers of competing technology make it easier for merchants to sign up directly from their Web sites, he said.
Aaron McPherson, a research manager for payments at the Framingham, Mass., research firm IDC Financial Insights, said he took issue with the Web site's promise that the Square device could be used to process payments without having a merchant contract.
"Without any contract, how do you know that the money is going into your bank account?" he said. Further, using such a system without a firm relationship with the vendor is likely against the card brands' bylaws, he said. "MasterCard and Visa won't let you do it."
McPherson said he has reached out to Square but has not heard back. That Square has not been more responsive to industry analysts or media is telling, he contended. "I wouldn't go so far as to say there's some deep dark secret they're hiding," he said, but "I think it means they're a long ways off from having a real product," and are more interested in generating early buzz.
Beth Robertson, the director of payments research for Javelin Strategy and Research of Pleasanton, Calif., said that if Square is able to allow merchants and consumers to accept card payments without a conventional merchant account, that may be a bigger selling point for the system than the technology itself.
"There are some solutions that are similar that are available from merchant acquirers," she said. "The difference here is it appears that one does not have to go through the normal qualifications that a merchant acquirer requires for a merchant to accept cards."
