Mobile-payments startup Square Inc.’s $100 million venture-capital avalanche announced June 29 could mean that the company’s transaction volume is gaining significant momentum despite its lack of profits, one analyst contends.
The San Francisco-based company announced via Twitter that it received its latest funds-infusion from Menlo Park, Calif.-based venture capital firm giant Kleiner Perkins Caufield & Byers, reportedly bringing the company’s valuation to more than $1 billion.
The company also announced June 29 via Twitter that Mary Meeker, a Kleiner Perkins partner, has joined Square’s board.
The new funds have caused Square’s valuation to skyrocket in a relatively short period of time, although the company has yet to post a profit.
Launched in late 2009 by Twitter founder Jack Dorsey, Square initially attracted a $10 million investment from Khosla Ventures, bringing the company’s valuation to $45 million. In January, a $27.5 million round of funding from Sequoia Capital pushed its valuation to $240 million, observers say. Visa inc. also invested in the company (
Square targets small-business owners, providing them a free device that turns compatible mobile devices into payment card readers. Users pay Square a 2.75% fee for each card-present transaction and a 3.5% fee plus 15 cents for card-not-present transactions.
The company has said it is processing some $4 million in transactions daily from small-business operators.
And the startup’s use among small-business operators appears to be increasing rapidly, Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC, told PaymentsSource in an interview.
“Dorsey Tweeted on March 2 that Square just had its first $1 million day in terms of transactions, so it appears their momentum is growing pretty fast, which is what must be persuading venture-capital firms that Square is on its way to becoming a very significant player in payments,” Ablowitz said.
Besides its card reader, Square in May introduced Card Case, an application enabling consumers to make online purchases (
To use the Card Case, customers must pay for a transaction with a credit or debit card at a merchant using Square’s new Register app the company announced March 23. Some 50 merchants nationwide are using Register nationwide, according to reports.
Square has faced skepticism from some competitors because its payment technology may expose users to fraud, given the lack of solid data-encryption standards (
And Square is positioned to function independent of Near Field Communication technology, which is the mobile-payments platform for a growing number of new schemes, including a large effort backed by Google Inc., Citigroup Inc. and MasterCard Worldwide (
But Square can change its tune on NFC down the road without hurting its chances for long-term success, Ablowitz speculates.
“Square isn’t oriented around NFC, and I think they’re wrong on that. But if NFC catches on widely, they can change their argument and say when the infrastructure arrives that now it makes sense to adapt to it,” Ablowitz said.
The next challenge for Square will be gaining widespread market adoption, and “using its venture-capital money, Square can try to go after more merchants and move upmarket to more and larger users,” Ablowitz said. “Square still needs to work out a lot of details with its Card Case product, which is kind of awkward, but they are clearly showing enough growth to persuade the money to follow them.”
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