Turn your iPhone into a credit card terminal with a $49.99 application

Most iPhone applications are free or have a nominal charge of a couple bucks. That's why we were intrigued with Innerfence, a Seattle startup that is charging $49.99 for its application.

What does it do for such a price? Founders Derek Del Conte and Ryan Johnson -- both of whom previously worked at Microsoft -- have figured out a way to turn the iPhone into a mobile credit card terminal. That means a merchant selling T-shirts on the Seattle waterfront or a craft maker at the Fremont Sunday market could whip out their iPhone, input a customer's credit card information and process the sale on the spot.

Amazing. Did Steve Jobs imagine the iPhone would be used for credit card transactions when he introduced the app store this summer?

Del Conte showed me a demo last week, and talked about the $49.99 cost which he admitted was an "interesting price point." Customers, which number fewer than 1,000, include artists, locksmiths, rental car agents and jewelers.

Here's how it works. A merchant who uses the application must also sign up with Authorize.net, a payment gateway that handles all transactions on the back end. (That costs about $25 per month, plus a small transaction fee.) After that is created, a merchant can then go to the application and input standard credit card number and expiration date from the customer.

Hitting the "charge" button sends the transaction through with funds moving into the merchant's account. At that point, the merchant can track the transaction and customer data in their online Authorize.net account. Receipts can be sent via email.

Originally Del Conte and Johnson created a photo sharing application, but abandoned those plans because they couldn't make money on it. They switched to iPhone applications, rolling out small applications that allow people to check baggage allowances on airlines and international wireless charges on mobile devices.

"Being from Microsoft land, we hadn't really written anything for the Mac," Del Conte said. "So it was one of those deals where we snagged a Mac Book on a Friday and wrote an app over the weekend to get started."

They came up with the credit card terminal concept after a brainstorm for a bigger, more ambitious idea. "At some point we said, 'wouldn't it be nice if we could accept a payment on the iPhone?'" Del Conte admits that it is a little different than what people typically find in the app store.

"It is not a lighter. It is not a virtual beer app. There is a certain set of apps that it is not," said Del Conte, adding that they wanted to develop something that was "really valuable for the business user."

But are people really comfortable using their iPhone to process credit cards?

"It is honestly a lot lower risk than the old school swipe and print, where you are taking an imprint of a card," Del Conte said.

And what are some of the other possible uses? Del Conte said one of the fist questions he usually gets asked if it is used to handle payments in less than savory business endeavors such as prostitution and drugs. He laughs on the suggestion, saying that is not the target market and notes those professions probably would operate a merchant account.

At $49.99 a pop, Del Conte said the application is cheaper than other mobile transaction devices.

"Conventionally the hardware to accomplish what we are doing on the iPhone tends to be expensive, it tends to be hundreds of dollars," he said.

Innerfence is working on other projects for the iPhone, including new features for the credit card terminal. The startup has been bootstrapped to date with Del Conte saying they have been running extremely "lean from the beginning."