This week's spat with VeriFone Systems Inc. is not the first challenge Square Inc. has encountered over the security of its device.

When Square made its debut in late 2009, part of its selling point — its status as an outsider to the payments industry — also proved to be one of its biggest obstacles, since it released few concrete details at first over how its device handled payment data after the swipe.

By April last year, Square had begun to answer those questions. It promised the financial services industry that its device would comply with the Payment Card Industry data security standard, a set of rules that describe how payment details must be protected by the companies that handle them. Though it had not by then answered all of its critics' questions, the San Francisco company had begun assuring its audience that these details were being addressed.

But just as it was appeasing its detractors, Square faced another issue: a hardware shortage. Square's selling point was its low barrier of entry; to accept payments, users did not have to enter the traditional relationships most merchants do and they do not have to pay for the device (aside from the cost of the smartphone or iPad that connects to Square's device). Demand quickly exceeded supply.

In June of last year, Square's chief executive, Jack Dorsey, told American Banker that "we let our excitement get the best of us."

It is not necessary to have Square's device to use its service, since card numbers can be typed in through software. Those that used its service complained of low transaction limits, which were part of Square's approach to tackling fraud. "We are rethinking and expanding our underwriting infrastructure to address this issue," Dorsey wrote to users last year.

In an interview in December, Dorsey said the company lifted its initial transaction limits after receiving feedback from pilot participants. "We realized very quickly that those sorts of limits just weren't going to work with how people wanted to use Square," Dorsey said. "We … figured out how to remove those limits so that people could accept any amount while still getting the necessary data that we need to make sure there is not systemic fraud."

Dorsey acknowledged his critics at the time but said the company had done a good job of handling the roadblocks given the challenges it was up against: "It is a very complicated world" Square is operating in, he said. "We do have a lot of things to do," including building software, hardware and risk systems.