Posted on Thursday, Feb 12th 2015
A Gartner report on Mobile Payment Transactions estimated the worldwide mobile payment transaction values to have grown 44% to $235.4 billion in 2013. Gartner expects the market to grow to $721 billion by 2017. The mobile payments processing market is dominated by a Billion Dollar Unicorn club member Square.
San Francisco-based Square was founded in 2009 by Jack Dorsey, of Twitter fame, and his friend Jim McKelvey. The idea for Square came when Jim was unable to complete a $1,000 sale of glass faucets and fittings only because Jim did not accept credit cards. Within a year, the two had launched their first app and service to process credit card transactions. The square-shaped credit card reader attaches itself to an iPhone, iPad, or an Android-based device and lets merchants accept credit cards anywhere, anytime. They also offer a Square Stand, which converts a traditional iPad into a point-of-sale system for merchants to use at their stores.
With changes in the nature of credit cards, Square is also expanding their portfolio. Starting this Spring, they will begin to ship a chip card accessory for the Square Stand. The Chip Card Accessory for Square Stand connects to a USB hardware hub so that merchants can accept chip-based credit cards from across the counter. Square also offers additional services such as inventory management, online invoicing, sales analytics, and fund management to their merchants.
Square’s basic reader is available for free to the merchants, but it charges for the other devices. The Square Stand is sold at $99 and the Chip Card Accessory will be available at $39. More importantly though, Square earns revenues by charging a fee for the transactions conducted on these devices.
Square charges a 2.75% transaction fee for all transactions irrespective of the card used. Other vendors not only charge nearly $50 per month for a card reader along with 1.7% per transaction, but also an additional $0.15 per swipe. Additionally, their charges are double for American Express cards. Square’s merchants believe that they have saved thousands of dollars by switching to Square.
Square does not disclose its detailed financials. They have even stopped reporting the number of businesses that they support. But back in 2012, Square was estimated to have been deployed by more than 2 million members. Revenues have grown significantly since. Earlier this year, Square was reportedly processing $100 million in sales a day. Analysts estimate that in 2013, Square’s revenues were at more than $100 million and they peg 2014 revenues in the range of $110 million-$165 million.
However, high revenues are not really translating to high profits. In fact, Square still remains a loss-making entity as they have to pay very high charges, an estimated 70-80%, to credit card companies including Visa and Master Card.
Square has received debt and venture funding of $590.5 million from investors including GGV Capital, Government of Singapore Investment Corporation, Morgan Stanley, Goldman Sachs, Silicon Valley Bank, Barclays Investment Bank, JP Morgan Chase & Co., Citi Ventures, Rizvi Traverse Management, Starbucks, CrunchFund, Richard Branson, Kleiner Perkins Caufield & Byers, Tiger Technology Global Management, Sequoia Capital, Visa, Khosla Ventures, Jim Pitkow, Marissa Mayer, David Lee, Andrew Rasiej, and Robin Chan.
Their last round of funding was held last year when they raised $150 million in a round led by GGV Capital and the Government of Singapore Investment Corporation at a valuation of $6 billion. In 2012, their funding had valued them at $3.25 billion.
Square was expected to go public last year, but in the face of continuing losses, it appears that those plans may have been delayed. Square’s product may have been impressive when it was launched, but since then competition has increased. Bigger companies like Intuit, PayPal, Apple, and Amazon have entered the mobile payment market with their own versions of mobile payment systems. Square will quickly need to figure out how best to structure its business to justify the multi-billion dollar valuation, or we’ll see an implosion in the public market.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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