Verifone’s claim: is “In less than an hour, any reasonably skilled programmer can write an application that will “skim” – or steal – a consumer’s financial and personal information right off the card utilizing an easily obtained Square card reader” because Square’s card reader doesn’t encrypt card data internally.

Verifone encrypts the magnetic stripe data on the device so unencrypted card data is never stored on your phone. The truth is that there are many other ways to steal credit card numbers (for example, taking a picture of the card, or just writing down the card number) and there are plenty of easily available, cheap card skimming devices if your goal is to steal the actual magnetic stripe data (which could be used to make a very realistic copy of the original card).

That being said, an iPhone application does make skimming easier than before (you could always steal music by copying tapes, but trading mp3′s is a lot easier). Square has responded, noting that JPMChase doesn’t care, so you shouldn’t either. We think that is mostly true.

Credit card fraud isn’t anything new, and there will constantly be scammers on the prowl for innovative technology to further their scams. We’re confident that Square can figure out security concerns, and they have staffed up their fraud department for that purpose. Also important to note – you are not liable if your credit card is stolen, fraudulent charges can be easily disputed at which point it becomes the joint problem of your credit card company, Visa/MC, the merchant and the merchant’s credit card processor (in this case Square+Chase).

Verifone is very scared – they have a huge business ($4.2Bn market cap) and an incumbent is winning on a new platform that threatens their core business. Square comes out the winner for most small retailers, and is marketing their service aggressively. If they win with the small retailers, a logical next step is to go after larger retailers which is where Verifone makes its money.

(To compare VeriFone and Square, use our handy calculator)

(Image of Doug Bergeron taken from http://sq-skim.com)