SAN FRANCISCO — Jack Dorsey revolutionized online socializing by co-founding Twitter in 2006. Now he wants to transform the way people exchange money.
Dorsey is leading a new startup called Square. Its first product resembles a cube: a tiny credit card terminal that plugs into the headphone jack of an iPhone. The goal is to make it easier to complete a credit card transaction, whether you're a street vendor selling T-shirts or an individual settling a lunch tab with a friend.
Dorsey, who was Twitter's chief executive until October 2008 and remains the social network's chairman, said he came up with the idea for Square nearly a year ago with Jim McKelvey, a glass artist who was frustrated after losing out on a $2,000 sale because he was unable to accept a credit card from a customer.
The two started brainstorming about how businesses and individuals could quickly start accepting credit, debit and prepaid cards over the iPhone and other small electronics, and came up with the idea for a credit card reader that connects to a cell phone.
Eventually, McKelvey and a group of engineers decided they should build a gizmo that hooks up to a standard audio jack, which is common on all sorts of consumer electronics from iPhones to BlackBerrys to laptops.
Many businesses already use eBay's online payment system, PayPal, so that they can take plastic on their Web sites, and iPhone applications such as iSwipe and Credit Card Terminal are available for on-the-go transactions.
In January, electronic payment services company VeriFone Holdings plans to release a service similar to Square's. That service, PayWare Mobile, is aimed at small businesses and fits a credit card terminal and small stylus (for signatures) into an iPhone case.
A business often needs to have its own merchant account with a credit card company to use one of these methods, though. Square takes a different tack: It has its own merchant account, so it takes on the responsibility for minimizing risk and fraud, Dorsey said.
This also means that anyone can use the service.
Using the so-called Square is pretty simple. Swipe a card through a slit on its side, and the device will read your credit card number and convert it into an audio signal that can be sent to the iPhone through the audio jack. Software in the iPhone then decodes the signal and sends the transaction data out over the cell phone network to Square's servers so the purchase can be authorized. Information is encrypted on the iPhone before it gets sent.
Customers can sign for purchases by writing with a finger on the iPhone's touch screen. Once the transaction goes through, credit card information is deleted from the phone, Dorsey said.
Square also works with Apple's iPod Touch, and Dorsey would like to soon have its software running on phones that use Google's Android operating software, too.
Square expects to release its first product to the general public in early 2010.