Smartphone Merchant Services: Are They Safe?

There has been a fast growing trend among small business owners–the use of smartphone-powered merchant services. An inability to accept credit card payments either online or in person can be the death of an otherwise promising startup. The use of smartphone-powered merchant services allows businesses to attach small (and I mean SMALL) credit card readers to their smartphones. This way, a business owner can accept credit card payments literally anywhere, whether it be a during trade show or even while waiting in line for the subway.

Some of the most popular merchant services include SQUARE merchant services, which offer businesses free merchant accounts with no monthly fees or contracts. Typically, having merchant accounts can be an expensive endeavor, with some companies charging hundreds of dollars a month to enrolled applicants. With SQUARE, even the card reader is free, and they only take 2.75 percent from sales, which is similar to other companies. The card reader even compatible with both Android and iPod smartphones, making their services even more versatile.

So with all of these positives, what could possibly be the drawback for business owners? The answer, of course, is safety. Earlier this month, Verifone CEO Douglas Bergeron (Verifone is a competitor of SQUARE) demanded that SQUARE recall their card reading devices because of safety issues:

Today is a wake-up call to consumers and the payments industry. Last year, a start-up named Square introduced a credit card reader for smartphones with the goal of making it very easy for anyone to accept credit cards through a mobile device. Seems like a great idea, but there is a serious security flaw that Square has overlooked that places consumers in dire risk.

In less than an hour, any reasonably skilled programmer can write an application that will “skim” – or steal – a consumer’s financial and personal information right off the card utilizing an easily obtained Square card reader. How do we know? We did it. Tested on sample Square card readers with our own personal credit cards, we wrote an application in less than an hour that did exactly this.

While it remains to be seen whether SQUARE merchant services is putting customers at risk, Bergeron brings up an important point. How safe is the financial information of consumers who use mobile merchant services?

Although these card readers may seem like a clever and convenient way to make payments, it is still important that consumers verify the reputation of a business before they swipe their card. Making a credit card payment during things like festivals or shows might be easy, but it can also put you at risk. Unless you have a previous relationship with a company, consider paying by cash until you can use a traditional card reader.

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