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Investors are not being shy about investing in Square Inc., a mobile payments company that says it’s processing $8 billion in payments on an annualized basis. It recently closed on $200 million in financing from Citi Ventures, Rizvi Traverse Management and Starbucks Coffee Co.
Square is a mobile payment acceptance service for use with smartphones and tablets. Merchants with Square accounts use an app and a payment card reader that plugs into smartphones and tablets to accept credit and debit card transactions. Merchants pay either $275 a month with no per-transaction fees or 2.75% per swiped transaction.
Square originally targeted smaller merchants, such as home improvement trades and self-employed individuals, who often could not afford a traditional merchant processing account. But the company has recently broadened its focus. Square announced in August that it would provide payment processing services to Starbucks, which has invested $25 million as part of this funding round in the company.
Investors are drawn to mobile payments companies, such as three-year-old Square, because of the potential payoff, says Rick Oglesby, senior analyst at consulting firm Aite Group LLC. “If you are looking for a big potential upside, Square has all of the pieces in place,” Oglesby says. “And they’ve already established themselves to a level where if they do eventually fail, they will likely be an attractive acquisition target, not a company that folds up and goes away.”
Square is one of several companies trying to gain ground in mobile payment acceptance. Others include eBay Inc.’s PayPal Here, PayWare Mobile from VeriFone Systems Inc. and PayAnywhere from payment processor North American Bancard.
Square has become a recognized brand, led by Twitter co-founder Jack Dorsey, Oglesby says. “They’ve also already been able to create a whole new market in a space where others had already failed, and have now proven that they can compete effectively in the more traditional payment market,” he says.