Square: the phone mobile gadget that could revolutionize the payments
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But the biggest irony of all, is that Square’s offices, along with some 10 other burgeoning tech start ups, are all situated in the huge and beautiful San Francisco Chronicle building, which due to severe decline of local media in the digital age, no longer is the presence it once was and rents out every part of the property bar a section of one floor its skeleton staff still occupy. Digital killed the print star indeed.
Dorsey also works and lives just a few minutes walk from the Twitter office, where he remains actively involved as the company’s chairman. However, despite his huge success in the communications technology field - with Twitter now reportedly worth over $1bn - it has cut little ice for him in the very different world of finance.
“Finance is a whole new world and I have had to learn a lot fast,” he said. “Twitter is a very different space and it’s been a brand new start.”
The idea for Square came about when Jim McKelvey, Square’s co-founder, but also a glass blower, lost a sale one day because a customer didn’t have any cash on him. According to Dorsey, no one in the US carries cash anymore.
“Jim rang me on his iPhone to say he’d lost this sale because he didn’t have any way of taking payment with a card. And then I thought you have this iPhone in your hand, which is like a mini computer and you can’t take a payment? That’s crazy and we started thinking about how to fix that. I wrote the code and Jim, being in design, created the Square plug-in.”
Initially Dorsey is targeting small business owners, of which he says there are 30 million alone in the US. However, according to his statistics, only 6 million SMEs in the US have a credit card terminal – leaving a niche gap in the middle – which he hopes to exploit from the ground up.
Babysitters, small coffee shop owners, flower stand businesses, are just some of the examples Dorsey cites when asked who are his targets.
“Our initial goal is to reach these people and make payments magical and awesome,” he says.
In order for Square to work, the vendor has to own an iPhone, iPod Touch, iPad or an Android-powered phone. They then need to download the free Square app, apply for the plastic reader - which is delivered free of charge within two to three working days - and then plug it into the headphone socket of the device.
A vendor then swipes a customer’s card through the plastic square plug-in to process the sale. The Square device reads the card information through the device’s microphone. The customer then signs using their finger on the touchscreen and chooses whether to receive their receipt via text or email.
For every card payment, the vendor is charged the flat rate of 2.75pc and Square takes its cut from that percentage. The amount varies due to the different deals it has in place with credit card companies such as Amex or Visa.
It is this unchanging 2.75pc commission that Dorsey thinks is one of Square’s major selling points to business owners.
“Business owners, when being sold a credit card terminal, are blinded by the offer of 1.79pc rate. However, that rate only applies on qualified cards, and so come the end of the month, the business owner has paid a range of commission costs, which go up to 4.5 pc, depending on the card, and end up paying out more of their profits than they wanted to. Square’s rate is flat across all type of credit cards.”
It certainly seems a compelling case. Dorsey, on a roll, pushes on to explain Square’s other advantages.
“Speed and cost savings are Square’s other great advantages. When business owners apply for a merchant account, it can take up to four weeks to sort out. Then there is a set up fee and a monthly fee to own the machine.
“With Square there is no set up costs, or equipment rental. Once you have downloaded the app, and received the card swiper, you are ready to take payments,” he explains
But what about security concerns? Is this new system watertight? “The app goes over an encrypted channel and despite needing an internet connection, no information goes onto the open web. We have been fully audited by necessary bodies and passed right away. All the protections that the credit card companies offer, still apply when using Square,” says Dorsey
The only potential downside to Square is the risk of web failure. With a merchant terminal, which vendors rent, if there is a phone connection problem or an issue with the machine, business owners have someone to call who is contractually committed to solving the problem. If a vendor has web failure, Square isn’t obliged to come and fix the issue for the business owner. However, an unruffled Dorsey says: “There is a way of getting around that and we are working on it.”
It is early days for Dorsey’s latest venture and his confidence is contagious. This is a man who taught himself how to write code at 14 in his bedroom and had the germ of the idea which was to become Twitter not long after that. He is now 35 and still seems to see the world in terms of how it should be, rather than how it is.
When reflecting upon the creation of Twitter, he says: “When I was younger I was obsessed with maps. At 14 I taught myself how to write software for dispatch companies, so that taxi drivers could let people better know their location. And then later, in 2001 when I was working in a dispatch company, I realised that I had wonderful picture of what was happening all over a city [in terms of pick up and delivery of goods] but that the people were missing.
“So I wrote some code for my Blackberry and created an email list of friends and when I was in the Golden Gate Bison Park I sent a message saying: “I am at the bison park”. That was essentially the first tweet [five years before Twitter started in 2006] but no one saw it in real time and then when they did – they all replied asking me why I was bothering to tell them what I was doing while I was doing it?”
Now tweeting short timely messages or more recently checking-in at locations through services such as Foursquare [a company in which Dorsey has invested] and Gowalla, is becoming the norm for the switched-on generation armed with smartphones.
However, the reason why Twitter took five years to get off the ground, is because the US only got SMS [texting] technology in 2006 across various mobile phone carriers.
“In the US we lag behind Europe in terms of the adoption of certain technologies,” Dorsey said. “SMS is a great example. We were 10 years behind the UK which is why Twitter took some time to launch [as it began as an SMS service] and the same is true with payment technology. In the UK, there are different expectations.
“British people never let their cards leave their hands. The payment machine comes to you. Here in the US, as liberal as we are, we have an aversion to changing our technology systems, so we still don’t have chip and pin when it comes to paying for stuff. We let our card go away with the vendor and sign for everything.”
Dorsey, not known for aiming low, says that his ultimate ambition for Square is to become the technology which handles “every transaction” across every business, of all sizes around the world.
However, two months in, with just a few local San Franciscan companies having adopted it so far, he is keeping his sights set on the US-only for the foreseeable future and focusing on making sure the technology works perfectly.
“We are restricting trade to the US-only and focusing on small businesses for the foreseeable future, but obviously have international expansion plans on the horizon,” he says.
The name Square was chosen because one of its meanings is to settle up. Just as he co-created an innovative communication tool in Twitter, which empowered anyone to have a voice anywhere in real time, Dorsey is hoping again with Square to empower people again in a different way. Theoretically with Square, anyone can be a business owner, anywhere, and all through a little white square and a touch of a screen.
