(April 27, 2010) The founders of the much-hyped Square Inc. payments system may have wowed a full-house crowd of bankers on Monday, but they added little to public understanding of how their product will actually work and how it will stack up competitively with similar offerings for mobile merchants.

While polite and talkative during a panel discussion in front of about 2,000 attendees at the NACHA Payments 2010 conference, Jack Dorsey, founder and chief executive of Square and co-founder of Twitter, and Jim McKelvey, Square’s chairman, talked mostly about their broad goals for Square and electronic payments in general. Dorsey, whose Twitter social network has taken the Internet by storm in just three years, said payments are “inherently social.”

“It’s a form of communication, and it’s never really been designed in a human way,” he told the audience. “It’s something that many people just have to deal with; they don’t love it. We want them to love it.”

In the early going, Square is offering major-brand card-acceptance services for very small merchants and also is planning a person-to-person service. The company has released an application and card reader than enables Apple Inc.’s new iPad device to accept card-present and card-not present payments at relatively low cost for merchants (Digital Transactions News, April 21).

Square has promised that an application for Apple’s iPhone and iPod touch, which observers expected to come before the iPad app, will be out by the end of the month. Also coming is an application for mobile phones running on Google Inc.’s Android operating system. Speaking to Digital Transactions News after the session, Dorsey also confirmed his company is in talks with MagTek Inc. and other unnamed companies about adding card readers capable of encrypting card data at the time of swipe. These readers would be made available at a price yet to be determined for merchants and individuals looking for more security. The current Square reader, which the company is giving away in its beta and which links to handsets via the ear jack, passes card data to the device, where the Square app performs security functions.

Peppered with questions from fellow panel members, from the audience, and from a live Twitter feed, however, Dorsey and McKelvey were vague about a number of key details and about what lies ahead. “We’re still learning,” said Dorsey in response to a question about Square’s business model and pricing. Asked by Digital Transactions News to identify the processors Square uses, McKelvey said he couldn’t now, but that the company will disclose those companies at a later date.

Dorsey’s and McKelvey’s comments indicated it’s possible Square could expand internationally, but only after establishing a solid beachhead in the U.S. And it could expand beyond its core initial client base of very small merchants and consumers with part-time businesses. “We think it will be used by a variety of people, including larger retail institutions,” Dorsey said in response to a question about whether big companies could adopt Square.

In response to a Twitter question about whether banks can partner with Square and whether they should, Dorsey said, “yes and yes.” For now, however, Square is concentrating on rolling out its system, finding opportunities for cross selling and other customer interaction through its text-message receipts, and integrating payment and business reporting.

Taking a cue from online payments leader PayPal Inc., Square stands in as the merchant of record on transactions submitted by its users. Pressed by panelist Steve M. Ellis, an executive vice president at Wells Fargo & Co., for details about its security and merchant-vetting systems, McKelvey said Square’s system is compliant with the Payment Card Industry data-security standard (PCI), and that it gathers phone numbers, e-mail addresses, and other data about its merchants. Payers also can opt for various levels of security, he added. “We think there’s a happy medium in there,” he said.

Despite the lack of detail, Square continues to benefit from the high-tech glamour surrounding its founders. One woman evoked peals of laughter from the audience when she told Dorsey that her young Twitter-using relatives had erected “a shrine” for him. When the session ended, a number of attendees lined up to have their pictures taken with him.

One veteran payments executive who asked not to be identified told Digital Transactions News that Dorsey and McKelvey, a former IBM Corp. manager, are still learning their way around the payments business. He added they are intelligent men who have consulted with many people in the industry and can’t be dismissed. Still, he thinks Square’s Silicon Valley glitter is attracting attention out of proportion to the company’s accomplishments so far. “If the Twitter guy wasn’t involved, they would be a non-story,” he says.