Visa, Apparently Satisfied with Square’s Security, Invests in the Startup

Square Inc. has been the mobile-payments darling of Silicon Valley because of its association with social-network superstar Jack Dorsey, the co-founder of Twitter. On Wednesday, however, the San Francisco-based startup gained the ultimate stamp of approval from the payments establishment when it disclosed that Visa Inc., the world’s largest payment network, had made an investment in the company. The investment comes at the same time that Visa endorsed what Square is doing regarding data security, an issue raised last month by Square rival VeriFone Systems Inc.

“We see this as an opportunity to invest in a new payment technology that has the potential to expand electronic-payment acceptance among merchants who cannot or do not accept cards today,” a Visa spokesperson tells Digital Transactions News by e-mail. “Mobile acceptance, like with the Square solution, is one great vehicle to do that.”

Square offers a cube-shaped card reader that plugs into a mobile merchant’s iPhone, iPad, or smart phone running Google Inc.’s Android operating system. Along with Square’s software, the reader enables the merchant to accept general-purpose payment cards. Founded in 2009, the company claims it is signing nearly 100,000 merchants per month this year. An executive told The Wall Street Journal that Square processed $66 million in charges in the first quarter and expects to triple that figure in the second.

“We’re thrilled to partner with Visa,” Dorsey, Square’s chief executive, said in a news release. “This relationship will accelerate our vision of empowering businesses and aspiring entrepreneurs to succeed. The best way to grow your business is to accept credit cards. Together, we can ensure that all businesses of any size can pursue the American Dream.”

Neither Visa nor Square disclosed the size of Visa’s investment. A Visa executive will join Square’s advisory board.

The companies were vague about what might arise from Visa’s investment. “While I can’t give specifics, what I will say is that we are focused on making it easier for merchants to accept Visa payments using mobile phones with the same reliability, convenience, and security that merchants and consumers have come to expect from Visa,” says the Visa spokesperson. A Square spokesperson referred only to the company’s brief release.

Visa’s investment is one more milestone in Square’s short but colorful history. The company survived a shortage of its readers in 2010 as well as a scathing media attack earlier this year by VeriFone, the nation’s largest point-of-sale terminal maker, which alleged Square’s reader left card data unencrypted and vulnerable to skimming (Digital Transactions News, March 10). VeriFone’s PAYware Mobile reader and software system competes for the same mobile merchants that Square does.

How much the issues VeriFone raised influenced Visa’s decision to invest in Square was unclear, but Visa brought up the topic of Square’s security in conjunction with a security conference it sponsored on Wednesday in Washington, D.C. A Visa blog for the conference contains a post from Ellen Richey, Visa’s chief enterprise risk officer, in which she notes that Visa has just released a set of best risk-control practices for mobile merchants and that Square “has expressed its support of Visa’s best practices and its intent to adopt them.” The blog also contains a post from Keith Rabois, Square’s chief operating officer, outlining Square’s security practices while stating that Square complies with all current standards. Further, Richey’s post also refers to a statement made by another Square executive at the conference that Square would have “encryption at the read head this summer.”

Asked for comment about the Visa investment, a spokesperson for San Jose, Calif.-based VeriFone told Digital Transactions News by e-mail that, “Our message was heard and obviously they agree with it.” But, referring to Square’s readers, he added that, “We are wondering what they are going to do to put the toothpaste back in the tube to address what they claim are the ‘hundreds of thousands’ of potential card skimmers already out in circulation, and also why are they continuing to advertise and ship something they know to be a security problem? It appears Visa is already having an impact by forcing Square to adopt encryption as we requested.” Asked about VeriFone’s comments, a Square spokesperson referred Digital Transactions News to the blog posts.

Earlier this year, Square raised $27.7 million in venture capital. Dorsey, meanwhile, recently returned to an executive role at Twitter but remains Square’s chief executive.