Jack Dorsey's Square Wants to Eliminate Cash, but So Do Visa, Mastercard, AT&T and Google

Nice Idea but Twitter's Co-founder Enters a Very Crowded Space Full of Players With Leverage Over Retailers

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Jack Dorsey and his startup, Square, want to replace cash registers, wallets and loyalty cards with mobile apps and a smartphone.

Jack Dorsey Credit: Simon Dawson/Bloomberg

But in that lofty goal, the Twitter co-founder is not only up against legacy payments systems and reams of red tape, but the massive credit-card companies, wireless carriers, Google and PayPal, which are all trying to do the exact same thing.

On Monday, Square, a mobile payments service, released a Register app for merchants to use an iPad at the point of purchase. With the software, merchants can complete transactions with absolutely no plastic, as long as the customer has Square's mobile app. For customers, Square has built a wallet into its app called Card Case -- again, no need for credit card or cash. Square stores payment details in the app, and by sharing your name when checking out, the transaction is processed and you get a text-message confirmation. The app also stores menus, directories for participating stores and tracks receipts. (Square has made a video to show off what it looks like in action.)

This is the second release for the startup, which launched in 2009 with a piece of hardware that plugs into a headphone jack to turn a smartphone or iPad into a credit-card reader. Square's new app for consumers recognizes that people may eventually want to dispose of their plastic all together. Of Americans who use mobile phones, 62% are open to using their device to make purchases, according to a recent MasterCard study from Kelton Research.

Square's Card Case system also marks the first major mobile payments launch in a category that has everyone from Visa to AT&T in a tizzy. Despite that head start, it remains to be seen if Square will be able to compete with the big guys, given their long-standing retailer relationships. After all, mobile payments requires cooperation from the stores and their legacy systems that accept those payments. With so many big guns in mobile payments, the crown may go to whichever system can get into more stores in more markets.

For now though, Square isn't worried about the big retailers. It's "giving big business advantages to local merchants," said a spokesman via email. "We are addressing the cost and inefficiencies to the market that is most impacted by it." The new system has launched with 50 local merchants in Los Angeles, New York, St. Louis, San Francisco and Washington.

Square does have a stable of retail relationships in its corner; it nabbed Visa as a strategic investor in April. To date, Square has raised $37.5 million in funding from Khosla Ventures, Sequoia Capital and investor angels that make up a veritable who's who of the tech world, including Foursquare co-founder Dennis Crowley, Google's VP-Local Services Marissa Mayer and Digg founder Kevin Rose.

However, Visa is also launching its own mobile wallet competitor. The credit card company recently announced it is working on a mobile wallet based on near-field communications technology (translation: touch or wave your phone at the register to pay, rather than give your name to a salesperson, who will have to find your account like on Square). Slated for the fall, Visa already has some major card issuers and banks on board. On the promotions front, which will likely be crucial in turning mobile wallets into loyalty card replacements too, Visa recently launched a text-message location-based deals program that it first tested with The Gap last holiday season.

Google will also roll out its own payments system in the coming months, and will unveil it at an event Thursday in New York, according to AllThingsD. Google is said to be working with Verifone, a cash-register system that 's already widely in place. Square, on the other hand, renders the need for Verifone unnecessary.

Finally, the wireless carriers are also vying to get into mobile payments. AT&T, Verizon and T-Mobile have partnered on joint venture Isis, which is designing its own mobile system to replace plastic credit and loyalty cards. What's more, Isis is already looking at ad agencies to market the system, expected to launch in Salt Lake City next year.

What then does Square have going for it? For one, its mobile payments system is actually here. It says a lot for the startup that it got to market first; despite the big guys' advantages, consumers have yet to see the fruits of their labor.

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