SAN FRANCISCO — Jack Dorsey revolutionized online socializing by co-founding Twitter in 2006. Now he wants to transform the way people exchange money.

Dorsey is leading a new start-up called Square. Its first product resembles a cube: a tiny credit card terminal that plugs into the headphone jack of an iPhone. The goal is to make it easier to complete a credit card transaction, whether you’re a street vendor selling T-shirts or an individual settling a lunch tab with a friend.

Dorsey, who was Twitter’s CEO until October 2008 and remains the social network’s chairman, said he came up with the idea for Square nearly a year ago with Jim McKelvey, a glass artist who was frustrated after losing out on a $2,000 sale because he was unable to accept a credit card from a customer.

The two started brainstorming about how businesses and individuals could quickly start accepting credit, debit and prepaid cards over the iPhone and other small electronics, and came up with the idea for a credit card reader that connects to a cellphone.

Eventually, McKelvey and a group of engineers decided they should build a gizmo that hooks up to a standard audio jack, which is common on all sorts of consumer electronics from iPhones to BlackBerrys to laptops.

Many businesses already use eBay’s online payment system, PayPal, so that they can take plastic on their websites, and iPhone applications such as iSwipe and Credit Card Terminal are available for on-the-go transactions.

In January, electronic payment services company VeriFone plans to release a service similar to Square’s. That service, PayWare Mobile, is aimed at small businesses and fits a credit card terminal and small stylus (for signatures) into an iPhone case.

A business often needs to have its own merchant account with a credit card company to use one of these methods, though. Square Inc. takes a different tack: It has its own merchant account, so it takes on the responsibility for minimizing risk and fraud, Dorsey said.

This also means that anyone can use the service.

“We’re trying to build a utility that scales not just to someone selling coffee in a store but also someone selling their couch or buying a MacBook Pro on Craigslist,” Dorsey said.

Using the so-called “square” is pretty simple. Swipe a card through a slit on its side, and the device will read your credit card number and convert it into an audio signal that can be sent to the iPhone through the audio jack. Software in the iPhone then decodes the signal and sends the transaction data out over the cellphone network to Square’s servers so the purchase can be authorized. Information is encrypted on the iPhone before it gets sent.

Customers can sign for purchases by writing with a finger on the iPhone’s touch screen. Once the transaction goes through, credit card information is deleted from the phone, Dorsey said.

Square also works with Apple’s iPod Touch, and Dorsey would like to soon have its software running on phones that use Google’s Android operating software, too.

Just about 100 of these squares are being tested by merchants in several cities across the country, and the company expects to release its first product to the general public in early 2010. It would give away the micro terminals and make money by charging transaction fees to those accepting payments. The fees have yet to be determined. Eventually Square hopes to offer a software-only option that doesn’t require the plastic gadget.

Square could help people such as Willo O’Brien, a designer and illustrator who sells clothing, cards and jewelry on her website and at craft fairs. She used to leave fairs with a stack of credit card receipts she had to enter by hand on her computer. With Square, she swipes a customer’s card and finishes the transaction on the spot, she said.

“The timesaving aspect of Square is huge,” she said.

It has also made it easier for her to accept plastic anywhere she goes. O’Brien recently took some baby clothes to a local bar, where a friend picked out what he wanted for his daughter and swiped his credit card on her square.

Not everyone believes Square’s approach is a good one, though. VeriFone CEO Douglas Bergeron said that encrypting data on the iPhone itself — instead of before the data is loaded to the device — presents a security risk. Beyond that, he’s wary of Square’s decision to have a merchant account for the company itself but not requiring individual businesses to have their own. Bergeron said VeriFone’s offering will require merchants to have separate accounts

“It would be like sharing bank accounts with your neighbor: It just doesn’t work,” he said.

But Tole Hart, an analyst for the Gartner research firm, believes Square could be right for street vendors and other small merchants. And because so many consumers are used to paying for things with credit and debit cards, Hart said, individuals might be interested in using it, too.

“It democratizes the receipt of credit card payments,” he said.

Source: USA Today

CardRatings.com, a for-profit organization that educates consumers about credit cards, provides these top picks for 2009:

Best cashback credit cards of 2009

Schwab Bank Invest First Visa Credit Card

If you open a Schwab One brokerage account, you may qualify for a Visa Signature card that offers a straight, 2 percent cash rebate on all purchases. With no limits and no restrictions, this hard-to-get card provides real savings all year long.

TrueEarnings from Costco and American Express

Costco members earn a dollar for spending $100 at most merchants who accept American Express. Cashback rewards grow 3 percent for annual gasoline purchases of up to $3,000 (1 percent thereafter), 3 percent for restaurants, 2 percent for travel, and 1 percent for other purchases.

Best airline and travel credit cards of 2009

Citi Premier Pass

This credit card travel rebate program awards roughly equivalent to 1 percent of purchases as credit toward future flights on partner airlines. Earn one point per dollar spent on the card and one point for every three miles flown. Expedia runs the reward redemption program, allowing customers to track low fares using points instead of dollars. Earn up to 100,000 points per calendar year with no annual fee.

PenFed Premium Travel Rewards American Express Card

Members of the Pentagon Federal Credit Union can qualify for this travel rewards credit card, offering up to five bonus points per dollar spent. PenFed rewards its cardholders with special deals on hotel upgrades and discounted access to airport executive lounges worldwide. Enrollment in the National Military Family Association qualifies any American to join this credit union, not just veterans.

Best low interest rate credit cards of 2009

Simmons Visa Platinum

Simmons First garnered attention in 2009 by attracting online customers from around the country. The bank, actually a collection of community banks in Arkansas, offers straightforward customer service along with some of the industry’s lowest annual percentage rates.

Iberiabank Visa Classic

Along with keeping interest rates low, Iberia was among the first credit card issuers in the industry to eliminate overlimit fees.

Best low introductory interest rate credit cards of 2009

PenFed Visa Gold Credit Card

Simple terms, no annual fee, and a 4.99 percent interest rate on balance transfers for 24 months make this Visa one of the strongest competitors on the market. PenFed also has a low 2.5 percent balance transfer fee with a $10 minimum and $100 maximum which sets it apart from most competitors.

Citi Platinum Select MasterCard

Citi keeps the 0 percent APR tradition alive, for at least a little while longer. New cardholders pay no interest for up to 12 months on purchases and balance transfers, with permanent rates among the lowest on the market. A 3 percent balance transfer fee applies.

Disclaimer: CardRatings.com says the information in this article is believed to be accurate as of the date it was written. However, credit card offers change frequently. Please verify all terms and conditions of any credit card before applying.

Source: Hearst Newspaper

That’s 100,000 miles, enough for two coach round-trip tickets or one business-class round trip to parts of Europe, including Belgium, France, Germany, Ireland, Luxembourg, the Netherlands, Switzerland and the U.K. You also can redeem miles for flights on codeshare partner American within the continental U.S., and to Canada, Hawaii and Mexico.

What’s the savings?
Potentially, a lot – especially if you rack up that $2,000. (Think about going cashless and using the card for last-minute holiday shopping, groceries, gas, bills and restaurants.)

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Only 26 percent of people who shopped over the weekend said they used credit cards for their purchases, according to a poll conducted for Reuters by America’s Research Group.

“That’s an amazing shift in consumers’ habits,” said Britt Beemer, founder of America’s Research Group.

A total of 39 percent said they used cash, while the remaining shoppers used debit cards, the survey showed.

Consumers shunning credit cards is a bad sign for retailers, since people who buy gifts with a credit card tend to spend anywhere from 20 to 40 percent more on the gift, Beemer said.

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