The Square Credit-Card Reader Controversy: How Verifone's Smear Campaign Went Bad
Regular Business Hacks readers know of our fondness for the Square, a smartphone-powered gizmo that allows merchants to accept and process credit-card payments for next to nothing. We're so fond of it, in fact, that we named it one of the top business gadgets of 2010.
So imagine our surprise when Verifone CEO Douglas Bergeron released an open letter -- and set up an entire Web site -- citing "a serious security flaw that Square has overlooked that places consumers in dire risk."
What's the problem? According to Bergeron, the Square hardware (which plugs into your phone's headphone jack) is easily hacked, meaning criminals can "turn the device into a skimming machine in a matter of minutes."
Scary, right? Well, yes, until you look at the facts:
- Verifone is a Square competitor, a Goliath to tiny upstart David. It would be one thing if Visa or MasterCard had raised concerns about Square security, but when a competitor does it, you can't help but question the motives.
- Similarly, it can't be a coincidence that Verifone's letter arrived just a week or so after Square announced that it was eliminating the 15-cent fixed transaction fee on credit-card payments. The industry standard: 30-45 cents per transaction.
- As Square CEO Jack Dorsey rightly pointed out in his response to Verifone, credit-card fraud is not new. "If you provide your credit card to someone who intends to steal from you, they already have everything they need: the information on the front of your card." [Italics are mine.] Furthermore, banks don't hold consumers responsible for fraudulent transactions, regardless of how they occur.
- Bergeron's letter may be addressed to "the industry and consumers," but there's no mistaking its intent: to frighten consumers away from Square and toward "secure payment systems, like those provided by VeriFone."
Don't take my word for it: Gizmodo calls Verifone's claims "overblown," and if you follow the chatter on Twitter, you'll see that most folks agree. The whole thing really blew up in Verifone's face.
The company must be feeling really threatened by Square to launch such an obvious smear campaign under the guise of warning consumers. That's my take on the controversy, anyway. What's yours?
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