credit industry

Twitter's Dorsey: Fixing credit cards with Square. Health records next?

October 4, 2010: 2:52 PM ET

With Square, the entrepreneur wants to bypass middlemen and empower small merchants. But can he revolutionize an industry wedded to decades of status quo?

Photo: Jemal Countess

When Jack Dorsey's friend, a glassmaker based in San Francisco, failed to sell one of his pieces on the street simply because he couldn't accept credit cards, he saw an opportunity. They invented Square, Dorsey's new company that transforms mobile device into a credit card readers, letting anyone accept a credit card and run a transactions in less than 10 seconds. As the Twitter creator still sees it, credit is in dire need of simplification, and Square is just the thing.

Square bypasses the standard business setup for accepting cards-- reader machines, merchant bank accounts and back office computers -- entirely. Plug the plastic square-shaped dongle into an iPhone, iPad or Android device, and you've got a mobile credit card reader. For each transaction, the person processing the credit card is charged $0.15 and 2.75%, notably less than online credit service PayPal, which charges $0.30 and 2.9% for transactions up to $3,000. Competitive transaction fees, along with Square's ease-of-use and Dorsey's clout, explain why the ambitious startup raised more than $10 million in funding and reached a valuation of $40 million-plus before it even launched.

As Square exits its pilot phase, we checked in with Dorsey to discuss the credit industry, recent criticisms of Square, competing startups like FaceCash, and his long-term plans. More

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