January 28, 2015    3 minute read

IPO for Square?

   January 28, 2015    3 minute read

IPO for Square?

An interesting piece of young technology is Square Inc, which is a card reader that facilitates the transfer of money from an individual to another with ease. It provides convenience to small business owners and market stall vendors, but more importantly the latter can potentially experience a rise in sales if they are able to accept credit card payments with the use of Square technology. The technology is rapidly gaining prominence in the world of payments.

A small business can register with Square Inc in order to be eligible to accept credit card payments, and once they do this they receive a Square reader. This can be an incredibly small, one inch in height, and inserts into the audio jack of iOS or Android device, or it can be a Square stand for example. Vendors will have two types of payment options. They can either make a simple $275 payment per month, or the alternative is paying 2.75 percent per swipe. As well as this, business owners will typically receive next-day deposits into their accounts thus increasing the attractiveness of Square’s technology. To top it all off, Square accepts all major credit cards including the likes of Mastercard, Visa and American Express. Most recently it has partnered with Apple Pay, which should take effect this year.

Square technology is currently available in the US, Canada and Japan. According to Square, small businesses make up approximately 99 percent of all businesses in Japan and SoftBank, a Japanese telecommunications corporation, claims that credit card transactions account for around 12 percent of all transactions. This signals a level of potential for Square, who have partnered with Sumitomo Mitsui Card Corporation, due to the fact that their business model is more ideally suited to smaller sized corporations when taking into account the percentage of small businesses in the country.

There is plenty of opportunity for the firm to increase its international presence, and in particular Europe. For example, according to the European Central Bank, in 2012 the total number of non-cash payments was 94.5 billion, which was a 4.2 percent increase from the previous year. In that year credit payments accounted for 27 percent of the total or 25.7 billion to be exact. This was a 3.0 percent increase from 2011 thus highlighting the continuous increase in credit card payments consistently since 2000, and, potentially, a window of opportunity for Square Inc.

This is where an IPO can come in. Square has had no problem in the past raising capital, as in 2013 the firm raised $200 million from Rizvi Traverse Management alone, which at the time valued the company at $3.25 billion. Other sources of funding have come from the likes of Sequoia Capital, Visa and Richard Branson. With sales approaching $1 billion in 2014, and the company hiring former Facebook and Goldman executives such as Gokul Rajaram and David Viniar to help oversee the continued development of the firm, an IPO for the Square seems ripe. Of course it will allow Square to raise additional funds, increase its brand awareness and possibly provide enhanced liquidity for existing shareholders. However, whether this takes place in the near future remains to be seen, although the company has held IPO negotiations recently with several banks.

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