Gartner’s 2013 report on Mobile Payment Transactions estimated the worldwide mobile payment transaction values to grow 44% over the year to $235.4 billion in 2013. The market was projected to grow 35% annually between 2012 and 2017 to be worth $721 billion by 2017. The number of users using mobile devices for payment transactions was projected to grow from $200.8 million in 2010 to more than 450 million by 2017. The analyst estimated that merchandise purchases will account for 23% of this market share in 2017.
Mobile payment device maker, Square, is counting on this merchandise purchase market to fuel its growth. Square’s namesake device, the Square credit card reader attaches itself to an iPhone, iPad, or Android based device to let merchants accept credit cards anywhere, anytime. While the device is available for free, Square charges a fee of 2.75% per transaction as its revenue share. Square deposits the funds received in the vendor’s bank account within 1-2 business days of the transaction. Square’s extended product line includes the Square Stand which is used by merchants at their physical locations. The Stand works with iPads 2 and 3 and is able to connect with the printer, cash drawer and bar-code scanner to help retailers with the sale transaction. The device is available to merchants for $99 each.
Square’s business has grown rapidly over the past few years. While they do not disclose revenues, market reports estimate that Square processed $30 billion in transactions last year, translating to nearly $500 million in gross revenues. But Square does not keep all of that revenue with itself. They have to pay nearly 70-80% of their revenues to credit card companies, including Visa and Master Card. For the current year, analysts estimate the net revenues for the year to be in the range of $110 million to $165 million. Square is yet to turn in profits.
Square’s IPO Plans
Square has been venture funded so far with funding of $341 million from First Round Capital, Khosla Ventures, Greg Yaitanes, Sequoia Capital, Visa, Kleiner Perkins Caufield & Byers, Tiger Technology Global Management, Starbucks, CrunchFund, Citi Ventures, and Rizvi Traverse Management. Their last round of funding was held in 2012 when they raised $200 million from Rizvi Traverse Management at a valuation of $3.25 billion.
But that is all expected to change this year. Square is said to be looking at an IPO this year and is already evaluating bankers and making senior management changes to help with the transaction. They are talking with Goldman Sachs and Morgan Stanley as underwriters for their 2014 IPO, at a valuation of close to $5 billion.
They recently hired Chief Financial Officer Sarah Friar who is an alumnus from Salesforce.com and Goldman Sachs. They also added David Viniar, a former Goldman Sachs CFO to their board last year. Finally, they added Gokul Rajaram, a former Facebook advertising executive to help grow their point-of-sale service segment.