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The problem they face is that their technology is simple enough and they have no real barriers to entry. If their model proves successful expect to see a lot of

The problem they face is that their technology is simple enough and they have no real barriers to entry. If their model proves successful expect to see a lot of other competitors with similar hardware all competing on rates with them. That will seriously drop the margins. I like them as a company and wish them well, but I could also launch a competitor to them if I felt so inclined. And that has to be a problem for them.

zbrock 16y ago
I think you underestimate the complexity of the payments space. It's pretty heavily regulated by the federal government (OFAC, AML), the payment card companies (MATCH, PCI) and local governments (MTLs, tax laws). Going through the audit process for PCI in particular is pretty rough. On top of that, designing, building and mass-producing a physical device affordably is pretty tough to do. All that being said, you should definitely give it a shot. Working on payments technology is a blast.
- acgourley 16y ago
  Well you're right that I know nothing about the regulation aspect of it. But I do know a thing about the hardware production side of things (what my startup is doing). I know enough to say that an existing player in the credit card processing space (regulation problem solved) could find consulting shops to build a audio-port credit card scanner for them. Or 30 pin connected scanner. Or usb connected scanner. And while I doubt they would have a brilliant product design like Square has, they only need to charge slightly less per transaction to get merchants on board.
  - defen 16y ago
    I think you're committing a fallacy that's common when people analyze startups - just because a company "could" do something - based on your outside perception of their resources and goals - doesn't mean that they will. As I'm sure you know, mass-producing a consumer electronics device is an entirely different ballgame than paying a consultant shop $20K to make a working prototype. For an existing player to do this would require strong leadership from the top, in order to get buy-in from every level of the organization; hiring of key personnel who are skilled in a field that is outside the company's core competency; money for salaries, product development, marketing, etc. Why didn't Intuit just build a better Mint? Or Google a better Youtube? Or Salesforce a better Heroku? Surely they "could" have done those things?
    - acgourley 16y ago
      I understand what you're saying, and I would never have claimed the same about Mint or Heroku (okay, I may have for YouTube). I think your argument hinges on the square device being complex. Let me break down what's inside: A piece of plastic, a single sensor, 2 wires, and a 3.5mm jack. That's not exactly "consumer electronics". And yes there are consultant firms who could drive the entire production of this device, from design to production, for a large company that can't rally the internal resources.
jnovek 16y ago
"but I could also launch a competitor to them if I felt so inclined." Do you have the experience to make the card-reader hardware? The iOS software? Do you have the cash to have the device produced for sale? Perhaps you do have all those things at your disposal, but the vast majority of people don't. I would say that simply by virtue of being hardware, the barrier for entry is at least high enough to eliminate most of the "garage hacker" types.
- acgourley 16y ago
  Clearly garage hackers are not their primary concern, and it's a strawman argument to imply thats what I was saying.
- dotBen 16y ago
  Anyone who is already in the card payments market can answer yes to those questions. And they have the advantage of already having the back end payment processing heavy lifting AND existing relationships with real customers. Sure, none of the existing players wanted to get into this space and be disrupted - or perhaps even able to come up with this creative alternative mechanism for taking benefits. But we're now seeing them take notice, switch gears and offer rival services. I'm hoping Square does well, but I think they face some stiff competition.

zbrock 16y ago

I think you underestimate the complexity of the payments space. It's pretty heavily regulated by the federal government (OFAC, AML), the payment card companies (MATCH, PCI) and local governments (MTLs, tax laws). Going through the audit process for PCI in particular is pretty rough. On top of that, designing, building and mass-producing a physical device affordably is pretty tough to do. All that being said, you should definitely give it a shot. Working on payments technology is a blast.

acgourley 16y ago
Well you're right that I know nothing about the regulation aspect of it. But I do know a thing about the hardware production side of things (what my startup is doing). I know enough to say that an existing player in the credit card processing space (regulation problem solved) could find consulting shops to build a audio-port credit card scanner for them. Or 30 pin connected scanner. Or usb connected scanner. And while I doubt they would have a brilliant product design like Square has, they only need to charge slightly less per transaction to get merchants on board.
- defen 16y ago
  I think you're committing a fallacy that's common when people analyze startups - just because a company "could" do something - based on your outside perception of their resources and goals - doesn't mean that they will. As I'm sure you know, mass-producing a consumer electronics device is an entirely different ballgame than paying a consultant shop $20K to make a working prototype. For an existing player to do this would require strong leadership from the top, in order to get buy-in from every level of the organization; hiring of key personnel who are skilled in a field that is outside the company's core competency; money for salaries, product development, marketing, etc. Why didn't Intuit just build a better Mint? Or Google a better Youtube? Or Salesforce a better Heroku? Surely they "could" have done those things?
  - acgourley 16y ago
    I understand what you're saying, and I would never have claimed the same about Mint or Heroku (okay, I may have for YouTube). I think your argument hinges on the square device being complex. Let me break down what's inside: A piece of plastic, a single sensor, 2 wires, and a 3.5mm jack. That's not exactly "consumer electronics". And yes there are consultant firms who could drive the entire production of this device, from design to production, for a large company that can't rally the internal resources.

jnovek 16y ago

"but I could also launch a competitor to them if I felt so inclined." Do you have the experience to make the card-reader hardware? The iOS software? Do you have the cash to have the device produced for sale? Perhaps you do have all those things at your disposal, but the vast majority of people don't. I would say that simply by virtue of being hardware, the barrier for entry is at least high enough to eliminate most of the "garage hacker" types.

acgourley 16y ago
Clearly garage hackers are not their primary concern, and it's a strawman argument to imply thats what I was saying.
dotBen 16y ago
Anyone who is already in the card payments market can answer yes to those questions. And they have the advantage of already having the back end payment processing heavy lifting AND existing relationships with real customers. Sure, none of the existing players wanted to get into this space and be disrupted - or perhaps even able to come up with this creative alternative mechanism for taking benefits. But we're now seeing them take notice, switch gears and offer rival services. I'm hoping Square does well, but I think they face some stiff competition.