A cryptocurrency future sounds liberating. In reality, it would be a disaster for everybody.
By James Surowiecki
Why: Expanding the use of mobile payments will help small businesses.
Key innovation: Built technology that lets anyone accept credit cards using smart phones.
Twitter founder Jack Dorsey's new venture makes it possible to process credit card transactions with a small reader that hooks up to a smart phone or tablet computer. The Square app allows a buyer to sign for a purchase on the device’s touch screen and uses the device's Internet connection to complete the transaction. The software then produces a digital receipt, which can feature a picture of the purchase, information on how many times the buyer visited that seller in the past, and a map showing where the transaction took place. The receipt can be e-mailed or texted to the buyer.
Although the majority of transactions are now electronic, it is estimated that U.S. consumers still spend over a trillion dollars in cash each year. Most people still need cash to buy things from smaller retailers, restaurants, and markets, and to complete transactions with friends and family or individual sellers.
Square is targeting small-business owners and independent retailers who don't have the capital to purchase a traditional credit card reader, as well as people who want an easier way to take money from customers at a garage sale or farmer's market. The company is giving away its readers by mail to anyone who downloads the Square app on its website. Square makes money by collecting a fee of 2.75 percent plus 15 cents from every transaction, although it must pass on a portion of that to the customer's card provider.
Challenges and Next Steps:
The company still has long way to go in establishing trust. It also faces competition from Intuit, which offers a similar service that is more geared to the needs of established businesses rather than casual merchants.