Twitter co-founder’s mobile payment company delays release due to fraud issues

Square, the mobile payment company founded and run by Twitter co-founder Jack Dorsey, has suspended more shipments of the hardware required to take payments while it irons out fraud issues.

The move has sparked more privacy fears, especially within the relatively new mobile payment sector, as Dorsey admits the company has been struggling to handle demand and the balance between convenience and security.

In a letter to customers, Dorsey said the company will impose transaction limits until it can fix the issues affecting payments, while shipments of the “square gadget” will be suspended.

“Square’s goal is to enable people to accept payments immediately, everywhere. We realise the amount of time we’ve taken to ship our Square readers has been frustrating, sometimes confusing, and has generated a number of questions.”

“When we announced the company last December, we estimated Square would be ready in the US sometime in early 2010. Since then, we’ve let our excitement get the best of us and have released parts of Square before they were fully baked.”

Square works via an iPhone app, in conjunction with a small piece of hardware known as a “Square”. When plugged into the iPhone’s audio jack, users can take credit card payments.

The service has been marketed to individuals, but a major focus for the company has been small businesses and sole traders.

While the service has been anticipated within the tech community for some time, the company has faced significant problems in getting infrastructure up and running. The “Square” gadget required to run the service was delayed for months, and businesses have only been taking payments for about four weeks.

Now, Dorsey says the problem has transitioned to a “credit processing and risk issue”, adding they need to improve infrastructure to both cater for demand and manage the risk of fraud.

“The way we are handling the risk of chargebacks and fraud is through transaction limits, but we have received feedback that those limits are too low. We are rethinking and expanding our underwriting infrastructure to address this issue.”

When they upgrades are finished, Dorsey said, an email will be sent to confirm a credit check, and the free “Square” gadgets will be sent out.

The delay is a significant setback for the company. While customers have been buying online for years, mobile payments are relatively new and the security around such payments is new. Users might be wary to adopt the technology if security concerns are already being confirmed.

However, Dorsey says the company has “the whole team” working on the problem.