Square roll-out delayed over fraud risk concerns
Square, the mobile payments start up from Twitter founder Jack Dorsey has delayed its launch due to concerns over the risk of chargebacks and fraud.
Dorsey launched the scheme to use mobile phones and any other device that has an audio input jack, as payment card readers in December, promising that the hardware would be ready for launch in early 2010.
Now Dorsey has written to customers admitting that the plans were released “before they were fully baked” and that “we’ve allowed our excitement to get the best of us. He wrote: “We realise the amont of time we’ve taken to ship our Square readers has been frustrating, sometimes confusing and has generated a number of questions.”
Apparently an early issue, and one that all developers working in mobile payments is familiar with, is the difficulty of getting the phones. This was apparently solved, using manufacturers from China.
The newest problem to emerge is to do with those thorny issues of charge back risk and fraud. As with contactless payments, the initial limit was set low to limit risk, but customers felt this was too low and would stop them using the service. Square then adapted the underwriting infrastructure to support higher transactions and has clearly been shocked by the financial implications if something goes wrong.
Square works via an iPhone app, in conjunction with a small piece of hardware known as a “Square” which allows it to work as a card reader. Businesses have been taking payments for about four weeks, and demand is reported to be massive, but the card processing and risk issue, both to cater for demand and to handle fraud, has proved more difficult to handle than management thought.
Dorsey wrote to customers that when the upgrades are finished, an email will be sent to confirm a credit check, and the free “Square” gadgets will be sent out.
The Square delay is a setback, both for the company and for mobile payments, which have been teetering on the brink of acceptance for years. What it proves is that there is customer demand. It also shows how important it is to have payment processing and risk experience in the team.