Square
Square is poised for its next act.
According to The New York Times, the San Francisco-based payments startup has raised an additional $150 million, at a $6 billion valuation. A spokesman for the company confirmed a new round of funding with The Times on Sunday, though he wouldn’t comment on the valuation or how much was raised. With this money, investors have bought Square some time as it struggles to live up to the lofty expectations that have hovered over the company ever since CEO Jack Dorsey founded it back in 2009.
Meeting such expectations won’t be easy. The payments industry is going through a turbulent period, marked by fresh technological constraints and a series of new entrants. This round of funding will give Square a fighting chance of fending off new rivals like Apple and Amazon, while also diversifying its business beyond payments with new tools and services for merchants.
The Changing Credit Card
Credit cards themselves are changing, as companies like Visa and MasterCard are doing away with the traditional magnetic stripe, in favor of so-called “chip and PIN” cards. As a result, merchants have until October 2015 to adopt new card reading technology. Square—whose flagship product is a sleek and simple credit card reader that merchants plug into their phones and tablets—will not only have to release a new version of the product, but it will also have to undertake a new sales effort to ensure merchants will still choose Square over the competition.
And there’s plenty of competition. Earlier this year, Amazon released its own card reader, joining a growing cohort of companies offering merchants a low cost way to accept credit cards. Then, just last month, Apple followed the likes of Google in threatening to do away with credit cards altogether, unveiling its long awaited mobile payments product, Apple Pay, which lets iPhone 6 owners pay for things using only their phones.
Of course, even if Apple fails to kill the credit card, Square must still face the fact that with so much competition, payments have become a commodity business. In order to live up to investor expectations, Square will have to develop new and novel products that generate different sources of revenue. And to do that, Square will need money.
Eye on Merchants
The process of transitioning Square from a pure payments company to more of an all-purpose ally for merchants is already underway. Over the last year, Square has launched a loan program for merchants called Square Capital. It recently acquired the startup Caviar, which gives restaurants that don’t offer delivery, access to delivery services. And it’s now offering everything from an appointment booking tool to an online invoicing tool, a customer feedback tool, and an analytics tool.
Even as Square works to redefine itself in a crowded market with new products, it has killed off some once promising products, too. Like Square Wallet, for instance, a predecessor to Apple Pay that allowed customers to start a virtual tab with merchants, and pay for things by just saying their name. But the product never took off, and this spring, Square shuttered it, replacing it with a new product called Square Order, which allows customers to place an order with a merchant ahead of time.
It’s a curious time to be shifting focus from the payments industry. After all, it seems to be the one space that every other company from Apple to Amazon, and even Facebook, wants to own. And yet, even with $150 million in funding, Square doesn’t have quite the coffers these other competitors have to build a big and sustainable company in such a low-margin business. Which is why it makes sense for Square to seek out new lines of business that can not only become new sources of revenue, but can also make Square more appealing to its merchant clients.
Of course, Square still needs to figure out exactly what those new lines of business will be. Now, at least, the company has the time—and the money—to do just that.
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