iCharge – Jack Dorsey gets some Euro heat

[Germany/UK] It didn’t take long. Square, the iPhone credit card transaction startup co-founded by Twitter’s Jack Dorsey, already has a European competitor.

Like Square, Berlin and London-based iCharge wants to democratise the ability to accept credit card payments in person through an add-on device for smartphones and the startup’s accompanying application and service that taps into established payment gateways. The result is that any sized retailer – from someone self-employed, an independent shop owner or small trader – can take payment by credit card using just an iPhone or handset running Google’s Android.

It’s practically an identical pitch to Square, although iCharge looks to be slightly further behind. The self-funded company, founded by “experienced serial entrepreneurs and experts from the credit card industry” sometime in 2009, will run a limited trial with select retailers this summer. A wider launch isn’t scheduled until the third quarter of 2010. Square on the other hand is currently in private beta and plans to launch in early 2010.

The begin using iCharge, merchants will need to purchase the smartphone-compatible card reader and register with the iCharge service. Credit cards can then be swiped and the card info is sent to the connected iPhone/Android application.

Next, and this bit has me slightly puzzled, the buyer signs directly on the smartphone touch screen to approve the transaction. That’s slightly odd but may work out fine in practice, since the iPhone and most Android phones employ capacitive screen technology and don’t come with or support the use of a stylus. Users will therefore need to sign with their finger unless the iCharge comes with a special capacitive supported ‘pen’ of sorts.

The credit card data and signature is then sent encrypted to the iCharge payment gateway, no sensitive info is stored on the phone itself, after which the buyer can optionally receive a receipt via email or SMS and may additionally track all transactions on the iCharge website.

Again, very Square-esque.

A big part of iCharge’s pitch inevitably centers around security. All data transfers utilise SSL encryption, and credit card numbers are checked against a database of known stolen credit cards. And in the future, iCharge says it will integrate further safety features, such as “buyer name and image verification via social networks, as well as storing the GPS location where the transaction took place”, thus providing more protection for the retailer.

But who’s going to protect buyers?

All of this democratising credit card processing technology may seem great but consider this: put a fake Square or iCharge device in the hands of a rogue trader, and a card reader attached to a phone running the ‘open’ Android OS seems like a fool-proof way to clone somebody’s credit card.

Just a thought.