Electronic Payment Devices (Appstar Financial ! Appstar Reviews)

Appstar Financial is a leader in the electronic payments industry. Appstar Financial has excellent reviews/ratings in electronic payment processing services, careers growth and Job opportunities. Hiring procedure at Appstar is high level. Appstar has successfully assisted Career / Jobs hundreds of people that entered the business with little or no industry experience.

Archive for the month “December, 2013”

How did you make your first million dollars?

Answer by Anonymous:

24: $0 – Broke neck in diving accident. Paralyzed from chest down. Began learning stocks.
25: $0 – Hired as an analyst by small brokerage at $1,000/mo.
26: $0 – Lost job.
28: $0 – Re-hired by different company at $500/mo. looking for defunct public companies to reverse merge with private companies wanting to go public.
29: $10k – Salary increased to $3k/mo. learned the biz inside and out.
30: $100k – Got stock in a few deals that worked out. Started my own company and did a few deals.
31: $1M – Did more deals.
32: $7M – Did more deals and invested on full margin during internet boom.
33:$700k – Market crashed and lost 90% of my net worth. Indicted for securities fraud but charges dropped. IRS nailed me for offshore account.
37: $500k – Lost more money in bad deals. Depression. Thoughts of suicide. No job. Too afraid of doing what I used to do, after getting burned.
40: $300k – Lost more money. Depressed. Studying spirituality. Tried day trading futures.
46: $300k – Never made money day trading. Still dealing with fears of losing everything, being broke and paralyzed. But trying to gain new strength every day. No longer depressed. Still seeking a new path. Meditating. Mostly at peace with fact I'm 46 and some would call a loser. But, no longer equate self worth to net worth.

1. You can achieve your dreams regardless of your limitations. 
2. Find a mentor, offer to work for peanuts and learn everything you can.
3. Hire an assistant as soon as possible to free you up for high dollar activities. They provide a huge ROI.
4. Cherish your youth and don't be afraid to take calculated risks early once you have some skills. It's easy to make up a 10k – 50k loss when you have your whole life ahead of you.
5. Luck plays a huge role. But, you also need to position yourself to get lucky. For a surfer to catch a big wave, you need to first choose to be a surfer, have the right board, surf under the right conditions and show up every day. Something bigger than you decides the size of wave you get.
6. Peal aside a chunk of your net worth and build a fortress around it. You never know when luck will turn.  Look at Eike Batista. Was worth $30 billion. Now filing bankruptcy.

I remember when I was in my mid-twenties and saw a friend's dad lose a nearly $20 million net worth in real estate.  I thought: "What a loser. I will never risk all of my money like that".  But when you're worth $2M you wanna be worth $5M. When you're worth $5M you wanna be worth $10M and so on.  Money is a game. Your life isn't.  After you have earned a nice nest egg, make sure you play the game with only what you can afford to lose. And check your greed every day.  Much more to life than money. Of course, that what's often said by those who don't have it 🙂

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What a Great SaaS VP Sales Actually Does. Where The Magic Is. And When to Hire One.

Post by Jason M. Lemkin:

What a Great SaaS VP Sales Actually Does. Where The Magic Is. And When to Hire One.

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What is Bitcoin and How is it used ?

Post by Mohamed Riyaz:

What is Bitcoin and How is it used ?

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Why should I switch our websites to Stripe from Paypal?

Answer by Cristina Cordova:

Depending on your specific use case for payments, there can be more differences to highlight, but here is some background to start. Prior to Stripe, when looking for payments service providers, you could basically go in one of two directions:

1. PayPal, Google Checkout, Amazon Payments.

  • They host payment pages for you, which makes the front-end integration easier, and helps limit PCI requirements.
  • You can get started immediately, and don't have to get your own merchant account.
  • Simple pricing, by and large.


  • Limited control over the user experience — you have to redirect your users to another site, show various logos, etc.
  • APIs that are not well-documented or very flexible.
  • Often quick to freeze accounts when suspicious of fraudulent activity.

2. More traditional payment service providers (Authorize.net, ChasePaymentech). 

  • Complete control over the checkout experience.


  • You handle sensitive card data, which forces you to invest significant time and resources in PCI compliance programs.
  • You have to get your own merchant account, which involves lots of paperwork and waiting days or weeks while the underwriting process happens.
  • Indecipherable/unpredictable pricing.
  • Legacy APIs.

Stripe gives you the best of both worlds with the kind of payments API that should always have existed:

  • Complete control over the checkout experience.
  • Stripe shoulders the PCI compliance burden by ensuring that you never need to handle sensitive card data.
  • You can launch immediately — no need to get your own merchant account.
  • Simple pricing.

With that for context, here are some reasons our users have chosen Stripe over PayPal:

Stripe has an an elegant, powerful API. Our API makes it quick and easy to integrate with Stripe. See what people are saying about our API here:  Search – stripe api. Based on what our users have told us, our API is much easier to integrate when compared to PayPal's. To illustrate, here's a blog post from one of Stripe's users about why they switched from PayPal: Why we ditched PayPal for Stripe. Because Stripe's API and documentation are so much easier to work with, we save our users engineering time, both when initially launching and maintaining their integrations over time.

Build your ideal payment experience. With Stripe, you have the complete freedom to create the payment experience you want. Users can also use Stripe's clean and elegant checkout experience, if they prefer to not build their own: Stripe: Button. With PayPal's primary merchant services, you'll redirect your customers to a PayPal branded webpage in order to pay. This can push customers into a completely different user experience that they're unfamiliar with. (If you want to design and host your own payment experience with PayPal, you'll need to use PayPal Payments Pro for an extra $30 per month, and contend with PayPal's API, or you can also use PayPal entirely as an API/gateway via Payflow Pro, which has the same strengths and weaknesses as other traditional payments service providers listed above.)

Stripe has competitive, crystal-clear pricing. Stripe charges you one rate for each transaction—that's it. There are no additional charges for failed transactions, American Express cards, international cards, stored cards, currency conversions, refunds or recurring payments. See more about our pricing here: Stripe: Pricing

PayPal's fees can make it very difficult to project what you're going to make from sales and what the true cost of payments processing is. In addition to PayPal's per transaction fee, you may also incur the following fees:

  • $30 per month if you want to design and host your own checkout pages.
  • 1% cross-border surcharge if you want to accept payments from another country.
  • 2.5% currency conversion fee (see international fee calculator here: PayPal Fees for International Payments).
  • 3.5% transaction fee when your customers pay with American Express.
  • $0.30 per uncaptured authorization.
  • A fixed fee portion of the original transaction fee when you issue a refund ($0.30 for domestic payments).

Stripe offers rapid help from real people. Our users can jump into our real-time community chat for immediate assistance from Stripe staff and our growing community of users, or email us for a fast, personal response. See an example from one of our customers here:

"I am not easily emotionally moved by git command lines, but this is clearly somebody who understands me and what I need in life.  In addition to exactly diagnosing the problem…he fixed it for everyone else. Sidenote: This is one of the very few times in my life where mailing support@ made me a better engineer." – Stripe And A/B Testing Made Me A Small Fortune

Based on what our users have told us, PayPal's customer support has left users wanting more:

  • "A combination of being unhappy with customer support and the disruption of our checkout process with redirects led to us searching for alternatives." – Why we ditched PayPal for Stripe

Stripe prides itself on having fast and thorough support from our engineers to help when you need it.

A fast, powerful dashboard. Stripe's interface is fast, exposes everything from bank transfers to HTTP request logs, provides instant type-ahead search over all your data, and generally makes managing your business simple and enjoyable. Once they get up and running, PayPal users often run into issues with the account management interface. It's slow and it's hard to perform functions like refunding transactions.

We hope you'll find that Stripe makes it easy for you to build and scale a business on the internet, and we'd love to get your feedback on how we can do even better.

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Why was the launch of Coin so successful?

Answer by Alena Matsiukhina:

I think the critical mass (users and technology) has reached its point as well as YC’s stamp of approval. Also the genius in simplicity and “cool” factor of the product.
I worked on a project This will change everything 4 years ago… and it never had made such a successful launch :/

View Answer on Quora

Why was the launch of Coin so successful?

Answer by Sean Mullen:

Coin is a useful product that meets real-world need. But a successful kickstarter launch and enthusiastic early adopters does not a successful business make. I hope it goes the distance, but we'll have to wait and see before determining whether its launch was "successful" or not.

View Answer on Quora

Why was the launch of Coin so successful?

Answer by Brian Roemmele:

1,000 Sold In 47 Minutes

There are a number of ingredients that allowed Coin to become a classic viral explosion.  

Coin set its sights on $50,000 to fund the development and production of the proof of concept wallet-like product. This goal was met in 47 minutes on the afternoon of November 14th, 2013. This represents at least 1,000 confirmed pre-orders. However, it is clear that the numbers will continue to raise, and they may have doubled as of today.  

1) Solving A Real Problem

Coin has touched upon a true problem with a Practical and Pragmatic solution. The problem is simple to express and understand and the solution is simple to express and understand. 

Problem: Too Many Payment Cards
Solution: One Consolidated Card

Just about all of us have at least a few payment cards, Coin would allow a single universal card to simulate eight payment cards with the promise on unlimited cards if one scans them into the app.

We all know that endless number of startup companies heroically started out to solve this problem and just about all of them got lost with abstractions and distractions that ultimately caused more complexity and confusion for the consumer and the merchant. Sitting on the shelf of history are hundreds of stories on how adding complexity and confusion for the consumer and the merchant tuned out.  The consumers are jaded and the merchants are jaded and aided by a philosophical premise I call Practical and Pragmatic. 

Solving a real problem is a powerful inducement.

2) Implied Limited Supply

Although Coin did not precisely state that they would only produce $50,000 worth of devices and thus limit production to 1,000 units, most of the people that visited the site could make this assumption. One of the reasons is the way many early adopters have had behaviors guided by the first order rewards just about every Kickstarter program uses to great effect. The “Pre-Order Now” button also could subconsciously signal a limited supply.

“Order now or it is too late" is a powerful inducement.

3) Limited Time Low Price

Once a potential customer visits the Coin site and are even partially interested, they may click the “Pre-Order Now” and they will see an instant order form and payment form. This form is unique in a number of ways.

The payment form is a beautiful implementation of Patrick Collison’s Stripe (company) payment API and works fast and flawlessly. This is done so well it is disarmingly fast and simple. In my view, it is a showcase of the really powerful features Stripe has to offer startup companies.

Coin shows at the top a 50% savings if you order now. They also imply a very limited supply with the “Limited Quantity.” Their order form is also very simple, it really only cares about your payment card details and your email address. This was a brilliant move to remove even the slightest barrier to completing more fields in a form. The final touch is to use the savings example at the bottom of the form reinforcing a $50 savings.

A limited time low price is a powerful, very powerful, inducement.

4) Early Tastemaker Appeal

Coin not only solves the very real problems that I presented in point #1, they also have presented a mesh-up of technologies that make most of us in technology get excited. They are mixing a little bit of the old-world with the new world. Coin is simulating a dynamically changing magnetic strip to present the payment card data to the merchants payment card terminal. It is not a large technological achievement, but it is unique for even the most informed. Coin is also using Bluetooth LE and applying the technology not just as a transmission protocol to communicate with the Coin card, but also to act as an electronic leash and tracking system for the Coin card. Finally, it is rather unique to present such a system to friends and family because few people would have seen this.

These combined elements are a powerful inducement for early adopters who are likely tastemakers and will have a direct influence on people that value their views and insight.

5) $5 Referral Program

There is a $5 compensation for referrals for anyone that has pre-ordered Coin. This will have a dramatic effect on how rapidly and how pervasively people will promote Coin. In my early research, 95% of the links I have seen on Twitter and Facebook are referral code links. The rules are really simple, [1] although perhaps too creatively written (I do appreciate the alchemy nod however):


    Q. How do referrals work?

    A. When you pre-order your Coin we conjure up a unique referral code URL using a mystical form of alchemy. If someone clicks the referral code link and pre-orders a Coin within 90 days, you get $5 credit. Magic loves to be shared.

    Q. What are the rules?

    A. We want this to work in your favor but there are a few rules. This isn’t Thunder Dome.

    First, we’ve got to be able to charge the person you refer. If there are any hiccups in processing the pre-order payment for a referral we cannot bestow the $5 credit upon you.

    Second, regardless of the quantity of Coins your friend orders you will still only receive a single $5 dollar credit.

    Third, we will honor your referral credits up to 90 days after you pre-order your Coin.

    Finally, you can earn up to $50 in referral credit. For you early adopters this means that if you get 10 of your peeps to pre-order a Coin, your Coin is on us.

    Q. How will I know when I’ve earned referral credits?

    A. Each time you earn a $5 referral credit, we will send you an email.

    Q. How will I receive my referral credit?

    A. We will issue a $5 refund to the account you used to purchase your Coin. If we hit any snags issuing the refund we’ll contact you via email and get it straightened out. We take the referral process seriously and want to reward you for spreading the word about Coin.

    Q. Can I use my own referral code?

    A. Clever, but no.

    Q. Will the referrer be notified when I use his code?A. When a referral is successfully processed the referrer is notified that…someone…has used his/her referral link. However, the identity of The Masked Referrer is forever a mystery! Unless, of course, you tell them it was you.

I was certain that this would produce a rapid viral effect when I saw it, and it did. This part of the marketing alone may be one of the most brilliant aspects of the marketing systems Coin has used to great effect. This is reinforced by the receipt email for the transaction:

Hello brian,

Our delivery owl will need an address to deliver your Coin but we'll get that from you later. For now check out your receipt and make sure we hit all the marks.

Date: 2013 Nov XXXXX
Pre-order number: XXXXX
Item: Coin – Midnight
Price: $50.00
Quantity: 1
Subtotal: $50.00
Shipping: $5.00
Total: $55.00

Want to get your Coin for free?

Use the URL below to refer a friend. Every referral equals $5 off all the way up to $50. Money for nothing. Clicks for free.


Yes, that is a live link, feel free to click my referral link and sound off a Cha-Ching of $5 in my direction.

Although referral systems have been around since the start of the Internet, they have been out of fashion with the last four years of popular startups. The correctly planned and presented referral program will bring a product to the tipping point of viral far faster then another force in business.

An easy to understand and use referral program may be the most powerful inducement.

Coin’s Combination Of Marketing Elements Are An Early Successes

There are some more aspects to why thus far Coin has been wildly successful. This success may be misread by some startups in payments and may prompt them to move in a similar direction. It is my advice to understand the five points I presented and the many other elements that are not obvious before building a new business plan.

Coin faces some very large challenges from all of the payment card companies validating if this system is acceptable. There are also a number of PCI DSS compliance issues that will need to be addressed. Coin faces the real challenges from merchants who have been trained for over 50 years to reject payment cards that do not adhere to the visual requirements the payment card companies require the merchant to verify. I presented this issue and other details in an earlier posting [2].

I obviously pre-ordered Coin and was motivated by my over 30 years in the payment industry and my desire to support innovation. Like anything that is essentially is funded by a group based on a prototype, a great story and wonderful vision there may be some challenges along the way.

No matter how this all works out, we can learn a great deal about how a great idea that really solves, at least a short term problem, can become a wild success.

[1] Coin
[2] Brian Roemmele's answer to Coin (startup): How does the Coin universal credit card work?

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How do payment networks make money?

Answer by Amanda Lim:

To understand how it works, imagine a $100 payment from a cardholder to merchant. In case the merchant fee is 2.4%, the merchant would get $97.60 from the transaction. $2.40 would get unevenly split between issuer and acquirer, depending upon the interchange fee. In case of an interchange rate of 1.8%, the issuer will keep $1.80 and acquirer will keep $0.60. Issuer gets to keep more of the merchant fee because of a higher risk of payment default from the cardholder. VISA makes money on payment volumes, transaction processing, and value-added services.

VISA captures value through the following revenue streams: Service revenues from banks for their participation in card programs; Data processing revenues for authorization, clearing, settlement, and transaction processing services; International revenues from transactions where the cardholder issuer country is different from the merchant’s country.


View Answer on Quora

How do payment networks make money?

Answer by Gus Fuldner:

Visa and MasterCard make money by charging fees to banks that participate in their respective networks.  They do not make money directly from merchant discount interchange fees by the merchant to the acquiring or issuing bank or from fees charged to the consumer (e.g., late fees, interest, etc.). 

The major components of revenue (from largest to smallest) are:

1. Network participation fees
Issuing banks (the cardholder's bank) pay a service fee that is a percentage of the payments value processed on cards (debit, credit, or prepaid) issued on that network. 

Acquiring banks (the merchants bank) also pay a service fee that is a percentage of the payments value processed through that network. 

2. Data processing fees
Issuing and acquiring banks also pay small fees for each transaction that is authorized or settled on its network.  These fee are not related to the value of the transaction. 

3. International transaction fees
Revenue from currency conversion and other international transaction fees.

4. Other
Revenue from operating rewards programs, concierge services, marketing promotions for certain merchants, and other programs that issuing banks offer to cardholders. 

Both companies are publicly traded so you can read their annual reports if you want more detail.

Visa: http://www.sec.gov/Archives/edgar/data/1403161/000119312510265236/d10k.htm
MasterCard: http://www.sec.gov/Archives/edgar/data/1141391/000119312511044721/d10k.htm

View Answer on Quora

How does Square Cash work technically?

Answer by Brian Roemmele:

The New Square

I was asked to answer this question and can only address information that is not confidential and is generally available.   From a technical perspective there are two active parts to the process: the consumer facing side and the backend processes. I will break this down into two sections.

The Consumer Facing Side

Square operates RFC 5321 compliant SMTP mail server(s) [1] that translates and acts upon a transactional email between two parties, the sender and the recipient.  Square currently achieves this through the Square Cash iOS and Android app and works in conjunction with the resident email app on the device to send the precomposed email message.  The transaction is limited to 48 states in the US (TN and HI are excluded) [2] and requires a US issued debit card with a Visa Or MasterCard logo.  A successful first time transaction involves four steps:

  1. The sender completes a form to a recipients email address for a stated amount.  Square then composes an email message that presents the amount to be sent in the subject line of the email with the recipient address in the “to:” field and cash@square.com in the “cc:” field.  The sender can send a message in the body of the email.
  2. The sender, recipient and Square receives a copy of the original email.  Square in turn creates two new email message: one for the sender and one for the recipient.
  3. The sender must respond to the email by clicking on a link and completing a form that requests a US Bank issued debit card for instant withdrawal of funds.
  4. The recipient must respond to the email by clicking on a link and completing a form that requests a US Bank issued debit card for up to two day deposit of funds.

If all goes well, the funds will transfer within a window of time that can span up to two days [3]:

As a Recipient, you will need to create an account with Square, and link your Eligible Transaction Account. Once you link your Eligible Transaction Account you will generally receive the funds that are sent to you within 2 business days. You will also e enabled to send funds to other Recipients after you receive funds using the Service. You agree that we will not be liable in any way for any Payments that you may receive, regardless of whether you authorized the Sender to send them to you.

Funds that are not claimed have an interesting fate [3]:

You understand and agree that when you initiate a Payment Instruction from an Eligible Transaction Account using the Service, the processing of the Payment Instruction will begin and the debiting of your Eligible Transaction Account will occur as early as the day of such initiation. However, we will only begin to process the requested transfer of funds once the Recipient has provided all required information, and you hereby authorize and direct us to retain such funds until the earlier of such time as the Recipient has provided all required information or fifteen (15) days.

Payments not claimed by a Recipient will be cancelled automatically fifteen (15) days after the processing of the Payment begins, and we will attempt to return any unclaimed, refused, refunded, prohibited, or denied Payment along with the Service fee to your Eligible Transaction Account. If we are not able to return the amounts to your Eligible Transaction Account we may use other reasonable efforts to return such Payment to you as permitted by law.

Square states that only US issued debit cards with Visa and MasterCard logos can be used for this system [3].  They explicitly state that no other payment card can be used.  However in my tests I was very surprised by a glaring oversight in this limitation. 

After the sender and recipient link their respective debit cards to the associated email address, this link is stored in Square’s computers and at this point there is no way for either party to unlink the association between the email address and the debit card.  This means that if you have many debit cards you need new correlated email account to accommodate these Square Cash transactions.  Square does not restrict the number of debit cards and email addresses you use.

The Backend Side

To perform this type of money transfer function in the US a bank is required.  In my early tests of Square Cash in June, 2013 I determined that my test transactions were processed by Chase Bank.  This was not a surprise as Chase is also the Visa and MasterCard Acquiring bank for Square.  Chase is also a Square early stage investor.

Square built a number of processes on top of the STMP mail servers that connect to internal systems that run a number of services from PostgreSQL, Ruby, Java, WebSocket Protocol and other systems.  These systems prepackage information that is sent to the Visa Personal Payments API [4].  MasterCard has an equivalent service however I will focus on the Visa API. Square is also using a third method I will call this the Purchase Refund method.

"Purchase refund? I did not buy anything." A Taxing Problem

In my tests I have also detected that Square is using a method that can best be discribed as kludged together and not the API method.  They issue a "purchase refund" as a method to pay the recipient's debit card.  This method is quite trival to implement and uses the standard payment card network but send a "purchase refund" for a transaction that had no purchase.  The problem is this creates mountains of confusion as the recipient tries to reconcile the checking account statement.  It also has a rather large tax impact to the recipient.  In an audit the IRS will question were the funds originated from that created this "purchase refund".   The sender is also confused as they are charged for a "purchase".  It all sounds like a witty solution but it will turn bad very fast.  I am rather certain Square has not thought of the tax issues this will cause, or the legal problems that can result. 

The other issue is that not all banks will allow an "unbalanced trasaction", knowingly.  I spoke to a risk executive at one of the top largest US banks and they said they would have a dim view of this system and may challenge it.  All refund transactions should be balanced with purchase trasaction.  If you operate a merchant account please do not try to experiment with this method, you will lose your account.   This method is also limited to only US accounts.  Finally this is really not a sustainable method for quite a number of other reasons and therefore Square would ultimatly have to use an API that was designed for this purpose.  

Visa has several mandates about unbalanced and unmatched refunds and recommends both card issuers and merchant acquirers to monitor them:

Credit and Refund Restrictions (ID#: 010410-010410-0001710)

A U.S. Merchant must not:
Process a Credit Transaction Receipt without having completed a previous retail Transaction with the same Cardholder, except as specified in "Credit Transaction Receipt Delivery – U.S. Region."

Original Adjustment through VisaNet (ID#: 010410-010410-0008880)
An Acquirer may initiate a credit Reversal only to correct inadvertent processing errors.

The Acquirer must process a credit Reversal or a debit Adjustment within thirty (30) calendar days of the Processing Date of the initial credit Transaction.

Credit Transaction Receipt (ID#: 010410-010410-0008605)
A Merchant may, at its discretion, prepare a Credit Transaction Receipt when a valid Transaction Receipt
was previously processed and the Cardholder either canceled the Transaction later or returned the goods.

At the time of the Credit Transaction, the Merchant must:
1) Prepare a credit that includes the Credit Transaction Receipt date and identifies the original Transaction.

2) Deliver a completed Credit Transaction Receipt to the Cardholder.

3) Deposit the Credit Transaction Receipt within five (5) calendar days from the date that the credit
was issued.

4) In the U.S. region, the Credit Transaction Receipt must describe the merchandise returned, services
canceled or adjustment made.

ID:# 151012-010410-0003076
A Merchant must not:
1) Accept payment from a Cardholder for the purpose of depositing funds to the Cardholder's account

2) Process a Credit Transaction Receipt without having completed a previous retail Transaction with the same Cardholder

The loading of value to a Visa Prepaid Card that has been designated for participation in the Visa Prepaid Load Service by the Issuer is excluded from these restrictions.

Effective 27 January 2013, in the U.S. Region, or in a U.S. Territory, the Merchant must refund any U.S. Credit Card Surcharge assessed on the Credit Transaction amount. For partial refunds, the U.S. Credit Card Surcharge amount must be pro-rated.

It will be interesting to see if this method is well received by the recipient banks if the service becomes very popular.  However something tells me they will continue to use this "purchase refund" method for a while.

The Visa API Method

Visa Personal Payments (VPP) [5] is a payment service that lets people send money to millions of eligible Visa accounts around the world through the Original Credit Transaction. Visa created this API a number of years ago and forms the basis of quite a number of programs that member banks have created.  The API system is not perfect and is still working out issues with some member banks.   This API is really quite powerful and has features that are far more simplex then what Square is currently using. Some functions of this API is:

  • VPP Money Transfer: Consumers can send funds to their Visa account or to another person’s Visa account.
  • VPP Prepaid Load: Consumers can load/reload funds to a Visa reloadable prepaid card in participating countries.
  • VPP Credit Card Bill Pay: Consumers can pay a Visa credit card bill.

Example of a program flow chart using the VPP API.

There are a number of steps that each transaction takes on the way to the recipient’s debit card.   The VPP program uses the same systems as a standard payment card transaction. However there are a number of codes set to inform the network that this is not a merchant credit but an OCT transaction. The minimum API calls to the VPP would be Account Verification (ACNV) and/or Account Lookup (ACNL).

Example of the transaction flow of a VPP API process.

In the example above, Square is inserted on the front and back of the VPP process.  Square facilitates the transaction on both sides but uses the Visa API to make it all operate.

Square Paying 10¢ Or More For People To Send Money For Free

Square would be paying 10¢ to Visa under the current Interchange Reimbursement Charts for a US based Original Credit Transaction.  There would also likely be a cost charged by Chase bank on top of this fee.  Thus it is safe to conclude at minimum Square is paying about 10¢ to perform a Square Cash transaction using the VPP API method or about 25¢ or more using the "purchase refund" method.  Keeping score, it means they are subsidizing each and every Square Cash transaction as Square is not charging for the service at this point.  Clearly this is not a sustainable business model.  If Square were to charge a fee, they would lose a majority of their business to other systems.

Building Payment Cards On File

The logic here is to grow the number of users they have on file and to build a large database of payment cards held on Square servers.  This can be the only reason Square would logically pay people to send money through their system.  The process to grow cards on file was started with what is now known as Square Wallet and continues on with the premise of the Square Market.  The Square Wallet has not performed very well and his since had the icon for the product removed from the front page of the Square website, now hidden as a gray text link at the bottom of the front page.   The Square Market faces a huge and well developed sector that has thousands of competitors many that can send millions of people per hour to the commerce sites they have built.  If you have a store online the one thing you seek is traffic and this translates directly to sales.

Square is hoping that the very over crowded person to person payment sector can tolerate yet another system.  They face a tremendous number of direct competitors: the semi-stealth Clinkle, Google’s Gmail based person to person payment system, over 200 US banks, dozens of other companies and of course PayPal. 

Square hopes that as more people register cards that in some way they can leverage this into a more appealing wallet system.  However in this process they will also face Apple and the iWallet based around the spectacular success of Touch ID.   As the iWallet becomes more clear person to person payments may become as simple as dropping an icon in Air Drop.

Email As A Person To Person Payment System Is From 1994

On October 20, 1998 a payment company that predated PayPal and x.com was issued a patent for a remarkable new way to pay, via email called “Computerized system for facilitating transactions between parties on the internet using e-mail” [6].  This may sound very familiar as this company not only invented the very first viable internet payment system, they built it around STMP mail servers:


A payment system and method are disclosed for processing financial exchanges over a network between a merchant and a buyer. For example, receiving from a merchant, over the network, information associated with a financial transaction and non-financial data relating to a buyer involved in the financial transaction. Authorizing payment, associated with the financial transaction, to the merchant on behalf of the buyer using the non-financial data related to the buyer. A notification of the authorized payment on behalf of the buyer is sent to the merchant over the network. Upon notification from the merchant that the buyer has committed to completing the financial transaction, processing payment to the merchant on behalf of the buyer.

Security is maintained by isolating financial and credit information of users' cardholder accounts from the front end portion of the payment system and by isolating the account identifying information from the associated e-mail address.

I became great friends with the primary author of this patent in late 1994 and continue to be in regular contact with him.  His name is Nathaniel S. Borenstein [7] and is by every definition a polymath and true scientist.  Nathaniel and I spent hours speaking about the future of payments and his company First Virtual [8] was the Square of 1996.  CEO, Lee Stein appeared on the front cover of Fortune and Business week at the same time.   There was high hopes for First Virtual just like there is for Square today.

First Virtual’s Simple MIME Exchange Protocol was built to scale and allowed sellers to verify accounts and buyers to initiate payment transactions.  The system was linked to a payment card on the buyer’s side and a checking account on the seller’s side.  However there was a movement to link buyer’s and seller’s payment cards to gather through First Virtual’s payment system. This was a decade before the Visa VPP was thought of.

This patent from First Virtual and about a dozen other patents may present Square with some rather large challenges.  There is clear prior art and if the patent holders express control of this method, it may have an impact on how Square’s current system may need to change.

Guess Who Owns The First Virtual Email Based Payment Patents?

There is a rather deep irony to the ending of First Virtual and how it relates to Square today.  First Virtual was too far ahead of its time.  And just as they began to gain traction the start of the Internet bust was taking hold (a Series A crunch).  The company was sold a number of times and wound up with Double Click in 2001. Double Click went on to sell the First Virtual patents to, drum roll, PayPal.  So as it stands today, PayPal not only owns the 1998 patent “Computerized system for facilitating transactions between parties on the internet using e-mail” but also a number of other foundational patents that cover email based person to person payments.

If anyone contacted me and asked about the challenges they would face with the intellectual property surrounding this method I would have advised a far different path that would not only be more efficient, but would not encroach upon prior art, while still using an email based system.  I am in no way double guessing the fine talent at Square and the wonderful lawyers they no doubt used to vet this system.  I do know however that three of the best patent attorneys in late 2007 advised a startup not to use an email based method as there were too many encroachments on prior art.  That company had over 10 million in funding and wound up pivoting to other things.

The New Square

Square has drifted very far from the business premise that made the company famous.  The primary premise was to help micro-merchants accept payment cards. Square simple but powerful premise was a spectacular success.  By constraining and editing, Square moved fast from the first transaction on a cold winter day in 2010, at Sightglass Coffee in San Francisco.  At the time there were few direct competitors focused on the micro-merchant using a smartphone and a card reader,

As we approach 2014 Square has hundreds of competitors with card readers on smart phones including Square’s own bank, Chase [8] and of course PayPal who is offering zero cost to merchants currently compared to 2.75% at Square.  These competitors have slowed the number of new merchants boarding the Square payment system and has contributed to the attrition they are experiencing.  Transaction volume will grow at Sqaure, because this is how payment card companies work, but as time moves on this too will flatten if new markets are not discovered.  Square is very late to expend into Europe, South America and Asia and lost first mover status to very well entrenched local and regional payment companies with very similar systems and price points.         

Square has also entered into a market that is very robust and full of agile competitors by creating the Square Market.   Competing with Amazon and Etsy and 1000s of other marketplaces is an interesting shift from Square’s roots.

With Square Cash, the company faces PayPal on their own turf.  And PayPal has a lower cost of funds when one aggregates the money on deposit the over 150 million PayPal users accumulated.  This means from a long term price point, PayPal would benefit.  We are also talking about the new PayPal that will no doubt match Square point to point to such a level that from a user’s perspective they would not see a difference.

Square also faces Google and the person to person system they have created.  Early and limited results show that the platform is already a mild hit with consumers.  Google will methodically expand this service and it will become as common as attaching an image to your email.  It just works.

Would you want to compete with Google, Apple, PayPal, Amazon and so many others even if you were the best startup the world has ever seen?  These company already solved the problems that Square is trying to address.

Square Is Packed Full Of Astounding Talent

 I fear that the company is now battling a multiple front war.  A study of history will inform how this always turns out.  Square’s ethos used to be about constraining and editing to an essence.  It was also about limiting the products so that the company can focus on the really big problems that need to be solved in payments. I think Square has some of the most talented people working on these projects.  I just think there are no new problems to solve in person to person payments and internet marketplaces especially when the company is facing the largest companies in the world in the process.

I have many friends at Square.  Some have got to know me here on Quora.  All of them know how much love I have for what they do and the company they work for.

That simple idea that started Square at Sightglass Coffee can still be kindled again.  I see so many unsolved problems for this amazing talent to solve.  Real problems that real merchants face every day, yet no one notices.  There just needs to be the leadership and the willingness to embrace the ethos that got Square so very far.  Solving the unsolved problems is how you change the world.

[1] Simple Mail Transfer Protocol
[2] Troubleshoot Square Cash
[3] Square Cash Agreement
[4] Visa Developer Program
[5] Visa Personal Payments
[6] Computerized System For Facilitating Transactions Between Parties On The Internet Using E-mail
[7] Nathaniel Borenstein
[8] First Virtual
[9] Square Banking Partner, Chase Releases Competing Product. by Brian Roemmele on Accepting Payment Cards

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