Square working on 'a credit processing and risk issue' before shipping more card readers

If you've tried to get in on Square's mobile payment system, you know that a critical part of the whole setup is the tiny credit card reader that plugs into your phone's headphone jack -- and in all likelihood, you don't have it. The company just sent out a message to those who've signed up for their service today, saying that a prior hardware shortage is resolved but that it's only half of the problem; the other half, and arguably a more serious one, is that the company needs to find a way to "handle the huge demand for readers and still manage the risk of chargebacks and fraud." So far, those risks have been mitigated by setting limits very low, but customers have apparently complained that they're too low, which is requiring a "rethinking and expanding" of the company's underwriting. Everyone's being assured that they'll be good to go once this whole process is over and clients go through a credit check -- but in the meantime, Square readers might be a little scarce, so it's back to IOUs and pocket change for a while. See the full letter after the break.

"Dear Square user,

We announced Square with the phrase: "0 to $60 in under 10 seconds."

Square's goal is to enable people to accept payments immediately, everywhere. We realize the amount of time we've taken to ship our Square readers has been frustrating, sometimes confusing, and has generated a number of questions. When we announced the company last December, we estimated Square would be ready in the U.S. sometime in early 2010. Since then, we've let our excitement get the best of us and have released parts of Square before they were fully baked.

A recent email from our support team to a Square user sums up where we are:

Until recently, we were facing a big hardware shortage, but that is now resolved (we sent our co-founder Jim to China for a couple weeks to arrange better manufacturing, and that did the trick). The problem has transitioned to something we've been working on simultaneously, a credit processing and risk issue. We need to strengthen our underwriting infrastructure so that we can handle the huge demand for readers and still manage the risk of chargebacks and fraud. This is the last thing preventing us from shipping readers as fast as we'd like, and we have pretty much the entire team working on it.

The way we are handling the risk of chargebacks and fraud is through transaction limits, but we have received feedback that those limits are too low. We are rethinking and expanding our underwriting infrastructure to address this issue. As soon as we finish, we will send you an email to confirm that you would like us to run a credit check (or you can cancel your request to process cards with Square which will securely remove your personal information). We will then ship your free card reader and activate your account to accept card payments.

We thank you for your continued patience as we work to deliver a utility you can use every day and for allowing us the time to get it right.

Jack Dorsey
Square CEO"