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Three reasons to invest in the Square IPO (when it finally arrives)

One of the more exciting start-ups in the tech space comes in the form of a pocket-sized, half-inch plastic square. Said plastic square can be plugged into the audio jack on your iPhone, Andoid, iPod or iPad and transformed into a mobile credit card processor. That’s the premise behind Square – an inspiring start-up with 100 employees based in San Francisco. The IPO rumors haven’t started up yet, but there are lots of reasons to be excited about this small company (even before we’ve gotten a chance to look at any financial documents). Here are three reasons to invest in the Square IPO (when it finally arrives):

1) Leadership. Investing icon Warren Buffett argues that you shouldn’t invest in companies but rather people. “You can have the greatest goals in the world, but if you have the wrong people running it, it isn’t going to work,” he said recently. “On the other hand, if you’ve got the right person running it, almost anything is possible.”

Without question, Square’s got an excellent pedigree. One of the company’s co-founders, Jack Dorsey also co-founded Twitter, rising at one point to serve as CEO (he’s now a chairman working on product development and growth). That takes up a mere 8 to 10 hours of his day. After that, he ambles down the road to clock another 8 to 10 hours of work at Square.

“Most people have major positions at companies and they’re also raising families,” Dorsey told Fortune last week. “They have two-year-olds. I have it easy.”

Best of all, Dorsey seems to possess a sense of a wonder that he uses to inspire the developers working below him. He does that in part with his weekly “town square” meetings where he takes 15 minutes or so to talk values and aspirations with his employees.

In a recent town-square meeting, he compared what Square’s doing to building the Golden Gate Bridge: “Every single aspect of this is gorgeous,” he said (per TechCrunch). “So your homework this weekend is to cross this bridge, think about that, and also think about how we take those (design) lessons into doing what we do, which is carry every single transaction in the world.”

2) The volume game. Numbers aren’t readily available, but we do know that Square is “processing millions of dollars in mobile transactions every week,” according to NPR. Let’s conservatively say the site’s processing $2 million in transactions weekly. That’s good for more than $225,000 in revenue. Not bad for a company that just opened its doors to clients nine months ago. The key here is scale. By poaching a huge number of transactions and reaping 2.75 percent of every sale, the company needs to consistently grow it’s user base to move toward profitability. The numbers look good so far.

3) The writing on the wall. Your head is planted firmly in the sand if you’re not convinced that credit cards are going the way of the dodo bird. In fact, I’d argue that it’s not just your head that’s buried in sand; it’s your torso, midsection, legs and feet, too. The smartphone is transforming into a mobile wallet. Every major credit card company in the world has started forays into the mobile payment processing realm and few have made it as simple as Square.

Merchants get their card readers for free. They pay no monthly fees, and they can use it as little or as often as they like. In fact, we might even use it to give our friends a few bucks for the cab we’re sharing one day. If Square can keep gobbling up marketshare while PayPal, Visa, Mastercard and others are still scribbling on whiteboards, they’re either going to IPO or get bought out. And either scenario will likely be a boon for shareholders.

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How to improve your credit score in six months

While we tend to think of credit scores as static numbers, that’s just not the case. Credit scores – and the factors used in calculating those scores – change frequently. A recent survey by VantageScore Solutions and Consumer Federation of America (CFA) found that Americans have had trouble keeping up with changes in credit score reporting and the implications those reports may have.

“The good news is that a large majority of consumers know the key factors used to calculate scores and the creditors who use these scores,” CFA Executive Director Stephen Brobeck said recently. “The bad news is that consumer knowledge has lagged behind recent changes in the credit score marketplace.”

Educate yourself on credit scores and credit reporting agencies and you’ll be in a great position to improve your credit score quickly. To substantially raise your credit score in six months is difficult. In general, it takes nine months or a year of making payments on time and performing some simple credit-related tasks to improve your credit score substantially. If speed is of the essence, though, here are five tips to help you incrementally improve your credit score in six months:

1) Do the things you’re supposed to. We all know the two most important factors affecting your credit score are your ability to make payments on time and the amount of debt you’re carrying on your credit cards and in your credit accounts. Spend the next six months paying down your balances, and be particularly careful to pay ALL of your bills on time.

2) Spread your balances out across multiple cards. This might not allow you to capitalize on the lowest interest rates, but it should help you quickly improve your credit score. Having a large amount of available credit but still carrying a high balance on a single card can actually hurt your score. Ideally, your credit card balances should be less than 25 percent of the total available credit for that specific card. Spreading your debt out, therefore, can raise your credit score.

3) Limit the number of accounts you carry with a balance. FICO high achievers have an average of just three credit cards (or accounts) that carry a balance. If you have more than three credit cards with balances, do your best to consolidate the debt. If you can spread your balances across three credit cards without using more than 25 percent of the available credit on each card, you’ll be in great shape.

4) Don’t apply for new credit. It may be appealing to open a new credit card account out of the hopes of doing a zero- or low-interest balance transfer, but every time you apply for new credit, your credit score will get dinged. If you’re serious about improving your credit score quickly, use only the resources you currently have available.

5) Don’t close any of your credit card accounts – even if they’re not carrying balances. The age of your credit accounts plays a big role in your credit score. If your oldest credit card is a tattered Target card, keep the account open – even if you plan to never use it again. Credit reporting agencies consider the age of your oldest account when factoring your credit score.

Last but not least, try to educate yourself on ways to improve your credit score. If you can avoid using credit repair services, you’ll be much better off in the long run. “Consumer protection officials agree (credit repair services) often overpromise, charge high prices, and perform services, such as correcting credit report inaccuracies, that consumers could do themselves by just contacting the lender and the credit bureaus,” the CFA says.

You may also consider talking to your local bank to see if they can offer any low-interest options to help you pay off your debt faster. Many banks offer so-called signature lines of credit that do not require collateral and typically charge interest rates that are lower than rates charged by credit card companies.

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How to invest in ISIS

Online mobile shopping could command as much as 12 percent of total global e-commerce by 2015, according to a report ABI Research. It’s a sign of just how comfortable consumers are getting using their phones to make purchases. The next logical step is to use mobile phones as payment mechanisms in stores, restaurants and small businesses – doing away with plastic once and for all.

The transition from credit cards to phone swiping could completely change the way with interact with businesses. No longer would we use a simple plastic card with a magnetic strip on the back, we’d be paying with a computer that could track purchases, offer discounts, tick off rewards points and offer incentives to come back.

ISIS is leading the charge into the pay-by-phone marketplace through a partnership with AT&T, Inc. (NYSE:ATT), Verizon Communications Inc. (NYSE:VZ) and T-Mobile USA. The national mobile commerce network will use near-field communication (NFC) technology to allow phones to wirelessly communicate with checkout terminals.

The goal of ISIS is to provide wireless services to more than 200 million consumers. If the roll-out, which is taking place over the next year, gains traction, it could stand to pad the pockets of several companies. Here are some tickers to consider if you’d like to invest in ISIS and NFC:

Discover Financial Services (NYSE:DFS). Payments made through the ISIS network will be processed by Discover. The Discover network is currently accepted at more than seven million merchant locations nationwide. DFS will, no doubt, get a percentage of all the sales the company processes.

Barclays, PLC (NYSE:BCS) Barclaycard US is expected to be the first issuer on the ISIS network thanks to the company’s experience processing NFC payments using standard credit cards. Eventually the ISIS network will be expanded to other banks.

While it’s unclear exactly how AT&T, Verizon and T-Mobile will profit off ISIS, I suspect they’ll also receive a cut of the payments processed over the network. They’ll likely ramp up efforts to partner with retailers to offer expanded services, too – things like rewards points, customer tracking and coupons.

It’s important to remember, though, that ISIS is just one of the many networks and companies working to dominate the pay-by-phone market. Visa, Inc. (NYSE:V), MasterCard, Inc. (NYSE:MA), eBay Inc.’s PayPal (NASDAQ:EBAY), Google Inc. (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) are just a few of the heavyweights with skin in the game. It’ll be interesting to see which companies come out on top.

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HDFC Bank turns dominant in India’s credit card market (HDB)

With rising defaults on personal loans in India, the country’s credit card market has undergone subtle but seismic shifts over the past two years, and it’s beginning to look like HDFC Bank Limited (NYSE:HDB) is poised to come out on top. The company defied market expectations last quarter by reporting a 33 percent rise in net profits.

The number of active credit cards in India has tumbled since March of 2008 from 20.75 million to 10.82 million as of November 2010, according to the Times of India. Unlike most domestic and foreign banks operating in the country, though, HDFC has aggressively grown it’s credit card portfolio.

“Industry officials estimate that HDFC Bank is nearing leadership position, followed by ICICI Bank (ICICI Bank Limited, NYSE:IBN) and SBI Cards,” Mayur Shetty writes in the Times. “Although HDFC has been the most aggressive in card issuance, its card customers are predominantly account holders in the bank.”

Rising interest rates and higher commodity prices will likely crimp borrowing going forward, but the Head of Equities at Ambit Capital, Saurabh Mukherjea, expects HDFC to outperform the sector.

“There will be consensus pullbacks in our FY12 economic growth rates and the banking sector will see some pullback on the back of that,” Mukherjea told the Economic Times. “But by and large the higher quality banking names, HDFC in particular, will outperform the rest of the sector as we enter a softer period from an economic growth perspective.”

The Royal Bank of Scotland ranks HDFC highest among private-sector banks in India, according to Reuters. Analysts there have retained a “buy” rating on HDFC, “hold” on ICICI Bank and “sell” on Axis Bank (AXBK.BO).

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NFC: The next trillion dollar industry (AAPL)

Just when you started to think that Apple Inc. (NASDAQ:AAPL) couldn’t possibly come up with another multi-billion dollar money-making venture, rumors have started trickling in that the iPhone 5 and iPad 2 will contain near field communication systems.

This “wave and pay” technology, dubbed NFC for near field communication, will allow you to swipe your phone like a credit card at Macy’s or the local gas station. And it will all rely on a small chip that can exchange data with a checkout terminal when the terminal’s within four inches of your phone. If Apple adopts the technology, it should have an inherent advantage over competitors thanks to the fact that most iPhone and iPad users have already linked their devices with a credit card or bank account via iTunes.

The biggest hurdle to adoption? Ensuring that retailers support NFC. According to Reuters, Apple is considering deeply subsidizing the terminals, or giving them away for free to encourage nationwide adoption of the technology.

With Americans charging more than $1.8 trillion a year on credit cards, the move could be yet another game-changer for Apple and the credit card industry in general. Indeed, an army of startups have been working on ways to make purchases easier and more rewarding for smartphone-wielding customers.

I wrote recently about the Bay-area startup Bling Nation, which has partnered with PayPal to test a RFID sticker that users could affix to their phones and use to make charges. Other companies are experimenting with key fobs, loyalty cards and NFC-enabled SIM cards.

The stakes are enormous as businesses start chipping away at the 2 percent+ cut credit card companies have been siphoning off purchases for decades. The progression from plastic to mobile makes perfect sense, though. Mobile phones are centralizing all of our tasks in one device. They’ve replaced watches, calculators, MP3 players, notepads, day planners and phone books. And that leaves just two more things in our pockets that phones will one day eliminate: wallets and keychains. Today the battle is being fought over the wallet, and the spoils in this war couldn’t be any larger.

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Bling Nation sets sights on Visa (NYSE:V) and Mastercard (NYSE:MA)

Investing in Bling NationIt astounds me that credit card companies like Visa Inc. (NYSE:V) and MasterCard Incorporated (NYSE:MA) haven’t made a strong push into the mobile payments arena. Roughly 264 million Americans ages 13 and older use mobile devices. If you could turn those mobiles into payment tools, it would make buying goodies at the mall (or anywhere for that matter) even easier than swiping plastic.

Bling Nation, a Bay-area startup, has seen the writing on the wall, and they’re rolling out a pilot program now that allows consumers to pay for products with their phones. Kind of. Here’s their vision: small businesses offer RFID stickers to loyal customers who can affix the stickers to the backs of their phones.

The customers can then link the stickers with their PayPal accounts, and use it make purchases at that business. If the price for the goodie is high enough, the consumer will have to enter a PIN number. Otherwise, they’re done.

Here’s where it gets interesting, though: Bling Nation charges businesses just 1.5 percent to use their purchasing platform. That’s half the cost most credit card companies charge (take that Visa and Mastercard!). Bling Nation has also partnered with Facebook so that consumers can optionally broadcast their purchase and/or location to Facebook.

Small business owners can track purchases and set up loyalty programs for their customers using Bling Nation’s online software. It’s the perfect marriage of old-world payment processing, new world social-networking and good old-fashioned capitalism.

Icing on the cake comes in the form of a rather spectacular board of advisors. Bling Nation has enlisted help from John Reed, the former Chairman of Citibank and former Chairman of the New York Stock Exchange, Jeff Stiefler, Chairman of Intuit’s advisory board and former President of American Express, Carl Pascarella, former President and Chief Executive Officer of VISA USA and VISA International, and Brian Swette, former Chief Marketing Officer of Pepsi and COO of eBay and current Chairman of Burger King, among other heavy-hitters.

It seems Bling Nation is the real deal. Now, if only there was a way to invest in the startup… It looks like you’ll just have to settle for shares in PayPay’s parent company eBay Inc. (NASDAQ:EBAY). If the idea takes off, though, watch for a buyout offer or an IPO in the coming years.

Flattr makes micropayments easy

Flattr MicropaymentsOne of my favorite bloggers, Steve Pavlina, talks a lot about how easy it is to lose the forest for the trees when you’re trying to make money. In a great post called How to Earn $10,000 in One Hour, he urges creative people not to focus on their hourly earnings rate, but rather the big ideas that will change the world and/or change your life in a single hour.

I think Flattr is one of those concepts. Founded by one of the original creators of The Pirate Bay, Peter Sunde, Flattr charges members €2 a month for an account. Those users can then click the “Flattr” button when they’re on a Web site, listening to a song or browsing art by an artist they like online. At the end of the month, Flattr will pool all the Flattr buttons you’ve clicked and divide your €2 (minus a 10 percent fee) among all those artists, writers and bloggers, and give it to them. It’s a brilliant way to make it easy to donate to the Web sites and creatives you respect and want to reward.

Flattr was officially launched in August, and I only heard about it after reading in the mainstream press that it was one of the few remaining ways to contribute to WikiLeaks now that the dossier-dishing site has been hog-tied by PayPal, Mastercard (NYSE:MA) and Visa (NYSE:V). The WikiLeaks tie-in has helped thrust Flattr into the public consciousness, but more importantly, it could fuel the concept’s growth for years to come.

I know it’s made me into a convert. I haven’t opened a Flattr account yet, but I plan to this weekend. I’ll also explore adding Flattr buttons to TradingStocks.me, and I’ll donate to other sites whenever I get a chance to reward someone’s good work. It could be a great new source of revenue for a lot of people. Or it could go completely ignored. The important thing is, it’s evidence that truly creative people like Flattr’s co-founder Peter Sunde make it a habit of looking at old problems in new ways and attempting to find solutions. If it works, generating the idea probably took less than an hour, but it has the potential to be worth a whole lot more than $10,000.

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Credit card companies Visa (V), MasterCard (MA) tossed under bus

Visa Inc. (NYSE:V) fell further than any stock in the S&P 500 yesterday as it bled off 4.13 percent. It was joined at the party by MasterCard Incorporated (NYSE:MA), which dropped 3.05 percent. The catalyst? Analysts at Bank of America Corporation (NYSE:BAC) downgraded the stock from “neutral” to the dreaded “underperform.”

Analysts cited stiffer regulations and rising costs as they gave Visa and MasterCard the proverbial middle finger.

“We believe it will be difficult for the current balance of power in the payment system to be sustained longer term, with Visa generating 55% plus operating margins while issuers and merchants struggle to make money,” research analysts at BAC told clients in a note (per the Wall Street Journal).

Not everyone’s so bearish on Visa and MasterCard, though, even in the face of the seemingly harsh financial reform bill that passed in July. The companies posted great 2Q numbers (revenue jumped 23% at Visa), and they’ve been largely insulated from the credit crunch since they don’t make money off of credit card users but rather off the fees banks pay the companies to process credit card purchases.

The thing that’s really got BAC’s analysts in a tizzy, though, are regulatory changes that will increase competition among debit card processors, which could potentially lower Visa’s rake. Under the reform, U.S. merchants must have at least two options when they choose a debit card processor – no longer will they just have Visa as an option. That means good, old-fashioned American capitalism will be at play. That could be a boon for merchants and banks and a downer for Visa and Mastercard (at least as long as we can keep them from colluding in the shadows).









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