SEATTLE —Square Inc. finally has shared some of the details about its mobile card-acceptance system, but payments executives still feel as though they have not heard the whole story.

The San Francisco-based company has generated plenty of buzz since announcing late last year it would “revolutionize” the payments industry with a device that enables small merchants and even consumers to use mobile phones to accept cards.

To date, Square has not matched that buzz with a compelling explanation of how its mobile card-acceptance device is significantly different from other emerging products designed for small merchants, or why consumers would even want to use it. Square’s two top executives did little to answer those questions here during a keynote panel discussion at the NACHA Payments 2010 conference.

“Their idea has merit, but a lot of the details need to be thought through,” Steve Ellis, a senior vice president with Wells Fargo & Co. and one of the panelists, said after the event. “They didn’t answer a lot of the questions.”

Instead, Jack Dorsey, Square’s chief executive, offered a high-level perspective on why the payments market is ripe for innovation. “Payments is inherently social, it’s a form of communication. But it’s never been designed in a human way,” he said during the session.

That sentiment makes sense, given Dorsey’s background in social media websites –he co-founded Twitter Inc. and was its chairman. And just as Twitter has helped to foster a sense of online community, he wants Square to make payments a more pleasant interaction for both customers and merchants.

“It’s very cumbersome and complex to get into accepting payments. … It’s not as approachable as it could be,” Dorsey said. “We want people to love it.”

Dorsey and Square’s chairman, Jim McKelvey, did share some details about Square’s business.

The company already is offering an application for Apple Inc.’s recently released iPad, though merchants may use it only as a point-of-sale system to manage cash transactions. By the end of this week, the company plans to make a version of the app that handles card payments available for both the iPad and Apple’s iPhone, and Square expects its card-processing system to be up and running.

Merchants will be able to download the app and insert the eponymous Square card reader into a phone’s audio jack. They do not need to set up individual merchant accounts with an acquirer, but they do need to set up accounts with Square, which already has relationships with multiple acquirers and will act as the merchant of record.

Square has set pricing but is still working out much of its own business plan.

Users will pay 2.75% of the sale plus 15 cents for each payment, which is treated as a card-present transaction. Dorsey stressed that there are no other fees, no setup costs and no hardware expenses “because that is the best user experience. No matter what card the payer pays with, a Square user is always paying the same amount.”

As the merchant of record, Square is liable for transaction risk and must cover the interchange fees, which will vary widely depending on many factors and could exceed those rates.

“Sometimes we win, sometimes we lose,” McKelvey said during an interview.

Dorsey said his goal is to make Square’s fees as low as possible, though he acknowledged that pricing is still a work in process. 

“We don’t know if that’s our end model. We don’t know if that’s a sustaining revenue that will … push the company to the next level,” he said. “It might be something we have to edit down, but it’s something that feels simple, and it feels good.”

Square is aiming at both small merchants that often do not take cards now and individuals who might want to accept cards if they are selling used goods–through CraigsList, for example–or for informal transactions such as paying a babysitter.

Some observers questioned whether consumers would want to accept cards for person-to-person payments.

Neal Platt, a senior vice president with CashEdge Inc. and the funds-transfer technology provider’s general manager for banking, contends consumers may be reluctant to carry around a Square reader and pay a transaction fee to accept money from friends or acquaintances. “They bring a Web 2.0 usability focus, and they want to make payments easy to use, but they didn’t do a great job of talking about how this would work,” he says.

Wells Fargo’s Ellis also had some concerns about security.

McKelvey said during the keynote speech that users’ identities could be verified using a number of factors, including their e-mail addresses, phone numbers and physical location, using the location-aware capabilities built into many phones.

But Ellis said this boils down to verifying identities based on data available on the Internet. “Their model puts Square on the hook for risk. That’s a big deal,” he says.

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