A free smartphone app called Square, made by California-based Square Inc. (www.square-up.com), lets anyone start accepting Visa, MasterCard, American Express and Discover payments by phone. They even send you a free little card-reading attachment. As with credit cards, the service is paid for by you-the-merchant, not you-the-consumer. My commuter buddy Harry showed me how he now collects from his IT consulting clients by phone, using Square, on our Septa run the other day.

Is this a disruption in the consumer-transaction racket, or what?

But Square, cofounded by Twitter developer Jack Dorsey, is backed by Visa, which has little incentive to wipe out its bank customers, at least not yet. "Square makes sense for 'micro-merchants,'" Thomas McCrohan, fin-tech analyst at Janney Capital Markets in Philadephia, told me. But as a mass payments device, "Square, and those investing in Square, are at risk of a fraud."
McCrohan said Heartland Payment Systems, the Princeton-based "point-of-sale" (POS) card-reader system vendor to upscale restaurants, says it's developing its own secure micropayment system. As copycats spread, "I believe Square will be relegated to the tiny merchants, nothing more."

I showed the app to Richard Vague, the Center City investor who headed the former First USA Bank when it was the world's largest credit card issuer in the late 1990s. He says Square is part of a scramble of efforts by firms like PayPal, Intuit, Verizon, AT&T, Visa itself to grab direct payment business. "The gatekeepers that emerge with the most customer volume will eventually dictate the new terms" for the small-business payments market, Vague told me.

"Since every smart phone will be both a payment device and a cash register, then the processors, the carriers, the device makers, and the app makers have a better shot at (controlling) this than the banks."