Payments start-up Square delayed over security concerns

Publicized payments start-up Square, that turns cell phones into payment card readers was set to go live at the beginning of the year but has been forced to delay because of security reasons, according to its founder.

The news comes from Jack Dorsey, the former Twitter founder who created Square to enable touchscreen smartphone users to accept credit card payments. In December, amid much hype, Dorsey predicted Square would be on the market in the US early in 2010.

"We've let our excitement get the best of us," Dorsey explains in a letter to customers. "We realize the amount of time we've taken to ship our Square readers has been frustrating, sometimes confusing, and has generated a number of questions."

There were hardware shortages reported, which have since been resolved with manufacturers in China, however there are new concerns which have caused the forced delay.

"We need to strengthen our underwriting infrastructure so that we can handle the huge demand for readers and still manage the risk of charge-backs and fraud," Dorsey said.

Although the letter from Dorsey didn't specify a new time-scale for delivery, it did highlight the difficulty with transaction processing, and the difficulty of water-tight financial infrastructure to prevent potential losses. 

Dorsey admitted that Square moved to negate potential risks by setting transaction limits but these have been set too low according to customers, prompting "rethinking and expanding" of the underwriting infrastructure.

About the product

Square will enable anyone with a touchscreen smartphone to accept credit card payments.

The scanner works with a specially-developed application on the handset that allows users to sign an electronic payment slip on the device's touchscreen using their finger.

The app then wirelessly verifies and transmits the payment to the user's online Square profile, which is tied to their bank account in a similar way to Paypal.

So far the app is only available for the iPhone and iPod Touch, although Dorsey said in a report by the Los Angeles Times that Square is currently developing software for Google Android, Blackberry, and even PCs.

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