Pedicab drivers are allegedly using the mobile payment application Square to rip off passengers, which could hurt consumer adoption of the technology.

According to an article in the New York Post, Square lets merchants charge consumers whatever they choose, and some pedicabbies are taking advantage of this system by tacking on extra fees without notifying passengers. These scams may add to consumers’ fears regarding the security of mobile payment services such as Square.

“We work with cardholders, credit card companies and, when necessary, the authorities to identify fraud, resolve disputes and protect consumers from bad actors,” said Aaron Zamost, spokesman at Square, San Francisco. “We have and will continue to shut down any accounts that attempt to engage in fraud.”

Square security
According to the Post, in June, a pedicab driver charged a Japanese couple $720 for a 20-minute ride from midtown to Greenwich Village in New York.

New York’s Department of Consumer Affairs is trying to address the scam by having Square subpoenaed to turn over the name of the driver.

According to Square, when a consumer disputes a charge with their credit card company, Square will provide information about the transaction, including amount, date, location, whether a card was swiped or not and whether there was a signature.

Even though pedicabbies are notorious for ripping off passengers, Square should want to avoid being blamed for aiding the drivers in their fraud. For Square to become a widely-accepted payment option, it will need to address security issues like these.

In 2011, Square lifted the $1,000 distribution limit a day for new businesses that had not gone through verification processes. In lieu of scams like these, Square may need to readdress its security policies and limits.

According to Drew Sievers, co-founder/CEO of mFoundry, Larkspur, CA, the location-transient nature of Square adds to the security worries. By enabling more fluid, mobile merchants to use its payment mechanism, Square inherently increases the potential for fraud.

Mr. Sievers is not affiliated with Square. He commented based on his expertise on the subject.

Until Square makes any significant changes, consumers wield the responsibility of being smart and safe.

Mr. Sievers advises consumers to be more vigilant about their Square purchases and ask to see the final amount submitted along with an immediate ereceipt that shows their charges.

Mobile payments
While security scares like these may hurt the future of mobile payments, the technology seems to keep expanding.

Last month, Square broadened its services by opening Square Market, an online marketplace similar to eBay (see story).

More companies are also beginning to accept payment services like Square.

For example, U.S. Bank recently integrated with the Square digital wallet, enabling its consumers to make payments via the mobile application (see story).

In May, Square rolled out its services to small businesses in Japan as well (see story).

“New technology adoption will take a hit any time there is well-publicized security or fraud flaws,” Mr. Sievers said.

“Larger companies can handle the PR hit better than small ones,” he said. “I remember a hot little social-financial company called Blippy that had a well-publicized, serious security flaw in their product. Never heard of Blippy? Exactly.”

Final Take
Rebecca Borison is editorial assistant on Mobile Commerce Daily, New York