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PayPal Fist Bumps Square

PayPal, which made its initial splash in 1999 by letting Palm Pilot owners beam each other money — only to abruptly drop the feature — has returned to its roots. The latest upgrade to the PayPal iPhone app lets you pay (and be paid) by bumping fists. As the internet goes mobile, so come ways […]

paypal_storyPayPal, which made its initial splash in 1999 by letting Palm Pilot owners beam each other money -- only to abruptly drop the feature -- has returned to its roots. The latest upgrade to the PayPal iPhone app lets you pay (and be paid) by bumping fists.

As the internet goes mobile, so come ways of leveraging your smartphone for cashless transactions. Think about reimbursing co-workers for getting you coffee without someone getting screwed because nobody ever has the exact amount. Think about not having to come up with cash when someone at dinner says he wants to charge the whole thing for the miles.

Or think about small businesses that can't be bothered with the cost and complication of credit card fulfillment equipment and contracts. That's the exact demographic Twitter co-founder Jack Dorsey is going after with Square, a startup whose small, iPhone-connected device will let small merchants take payments by swiping credit cards.

When it was launched, Wired.com called Square "Smartphone PayPal for Credit Cards." So that must make the new PayPal "Smartphone Square without Credit Cards." Besides that, the distinctions are narrowing.

Square requires that the seller have an iPhone peripheral and the buyer nothing but a credit card; PayPal requires both parties to have PayPal accounts — and the app, which, of course, can be installed on the fly. PayPal also requires physical contact, although the kind even Howie Mandell can handle.

There are more than a few apps that leverage the iPhone's accelerometer this way, including the appropriately-named "Bump," the billionth app downloaded from the iTunes store. And, hey, if first-bumping is good enough for the president and first lady ...

Also, it's good to have choices, including the choice not to even wield a credit card, whose use exposes you to the risk of ID theft. PayPal requires that you link your account to at least one credit or debit card or bank account but that information is never revealed to a seller.

So how big a deal is this? You can also text and e-mail someone money, but both of those methods depend on the buyer knowing something specific about the seller, to say nothing of the possibility of introducing error when entering information on your portable device. Square and now PayPal eliminate the need to share any information in advance so strangers can conduct a virtual money transaction without knowing anything about each other at all.

Full disclosure: I was an early adopter of the PayPal Palm app and delighted in using it to pay an equally enamored co-worker who went on coffee runs. The original use case, as reported by Wired.com in July 1999, was the lunchmate who "forgot" his wallet. When PayPal eliminated this feature in favor of e-mail -- a popular as the app was, there were only going to be so many Palm Pilots in circulation, and everyone had e-mail -- I wrote an angry e-mail threatening to cancel my account. I got a sympathetic reply, but no satisfaction (and I never canceled).

The irony is that this long-abandoned feat of digital legerdemain is what put PayPal on the map. The peer-to-peer tool was infrared — no Bluetooth or Wi-Fi networks yet. PayPal co-founder Max Levchin knew he was on to something "storing" money on a Palm, but he also thought the whole infrared thing was "quaint and silly."

"But that actually is what moved the needle, because it was so weird and so innovative," Levchin recalled in a Facebook interview last August. "The geek crowd was like, 'Wow. This is the future. We want to go to the future. Take us there.'

"So we got all this attention and were able to raise funding on that story. Then we had the famous Buck’s beaming — at Buck’s restaurant in Woodside, which is sort of the home away from home for many VCs," Levchin said. "Our first round of financing was actually transferred to us via Palm Pilot. Our VCs showed up with a $4.5 million preloaded Palm Pilot, and they beamed it to us."

There is cool, and there is cool. Whether fist-bumping a money token will ever replace the slick bill-palming technique that gets you the best table is doubtful.

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