Flowing red ink, Square seeks a buyer
Square's credit card readers, which fit into the earphone jack on Android and iOS powered smartphones and tablets, allow users to accept credit cards and debit cards outside of a store or office. After a card is swiped, Square processes the transaction, sends back a confirmation number, and will also arrange to have the funds deposited with the vendor's bank.
According to a pair of sources familiar with Square's financials, the company lost $100 million in 2013, a wider loss than what the company suffered through in 2012. In fact, Square paid out $110 million more than it took in. Since 2009, the company has raised $340 million in various funding rounds, and that money is said to be more than half gone. Square had discussed an IPO last year with Goldman Sachs and Morgan Stanley, but that option has been tabled, perhaps permanently.
Part of the reason for Square's financial distress is the 2.75% it charges merchants on each transaction. This is lower than what most banks charge to process credit and debit cards. In addition, 80% of those funds go to financial firms like Visa and MasterCard, and to cover fraud.
Last quarter, a Square insider told a company interested in purchasing it, that Square had 9 months left before it would be forced to dip into funds being held as a "last resort". Square did get some breathing room by arranging $100 million in credit from Goldman Sachs and four other banks this month. Meanwhile, there is some speculation that Google and Square have restarted talks.
1. Doakie (Posts: 1689; Member since: 06 May 2009)
Well.... I just ordered a Square card reader last week. TOO LATE!
Google should buy them and integrate them into the Google Wallet team like how PayPal has card readers that link directly with your PayPal account.
4. SemperFiV12 (Posts: 936; Member since: 09 Nov 2010)
Or Microsoft with their Wallet...
Or Apple and their wallet...
Good comment, but I am sure Square is over valuing themselves. Or all aforementioned companies can create a square rival with MINIMAL costs. Costs that don't compare to buying Square.
I, like you, wish they would... Wishing the Wallet feature of our phones actually did something.
6. bestmvno (Posts: 244; Member since: 07 Mar 2014)
The wallet feature of your phone, or many others at least does do something. Have you not tried tap and pay? It works great and I use it at my local grocery store as well as some pharmacies and other places. Sadly no advertising is spent to promote this, or even get more readers into more stores. It also works to store rewards cards, a lot of which you simply can scan into wallet. Again though, unless you have a galaxy s4 or glaxay s5 only a limited amount of places will be able to scan your phone, many will have to manually enter the rewards etc numbers from your phone.
3. Jommick (Posts: 221; Member since: 10 Sep 2013)
"Breathing room"? That's like saying I got a new credit card to pay my other credit card bills with. It's short term thinking that results in a worse financial state in the long run.
5. 0xFFFF (Posts: 3806; Member since: 16 Apr 2014)
Square has some nice ideas about making payments easier for people, but there is no fundamental market need for any of these things.
Starbucks, for example, works just fine without Square and will lose no customers after Square goes bankrupt.
7. bestmvno (Posts: 244; Member since: 07 Mar 2014)
There is absolutely a fundamental market need for this, and it is a very big need. At least in terms of POS mobile credit card readers. It makes things a heck of a lot easier for small businesses, and those that run tents at farmers markets, or festivals or street vendors etc as examples. Being able to use more than cash as a payment option increases one's business opportunities.
8. 0xFFFF (Posts: 3806; Member since: 16 Apr 2014)
I am a Square customer from the old days and I used to think there was some real market need for Square. But then I found at many farmers markets and festivals, it was far simpler to have one booth that ran a credit card and then handed out "farm coins" or "festival coins". This is a little bit more inconvenient, but it saves all the vendors from having to register with Square and it saves all the customers from having to use their credit cards many times. As a farmers market customer myself, I prefer "farm coins" and from the farmers I talked to, they like this as well. It also doesn't help matters that most farmers strongly distrust anything from Silicon Valley.
Maybe there is some real market need for simpler payments, but I believe this market is small and fragmented and a big VC play like Square is not going to be the appropriate market solution.
9. bestmvno (Posts: 244; Member since: 07 Mar 2014)
My initial reaction to your response was that it sounds like a nice idea, in certain situations, but then I remembered something. Farm coins are the worst for a customer, but can be great for businesses. 1) Having dealt with festival "tickets" to purchase goods, I find I'm often left with an odd extra ticket which is great for the "market" because money was taken from me without getting a good in return. 2) If I do have an extra ticket and don't want it to go to waste I can buy another ticket or two just to be able to use the 1 that's not worth anything to me, so a business is making more money. 3) I can simply give my extra ticket away, and I as the customer lose again. 4) I have worked in several farmers markets none of which use farm coins, just cash. So having another form of payment for when a potential customer runs out of cash is quite helpful.
Don't forget, this is largely about convenience for the customer. The more convenient it is, the less the hassle, the more likely a customer will buy a product. I'm also speaking from the perspective of a business where square and paypal and many other POS companies will supply a credit card reader to your business for free. With this in hand a small biz can now compete with larger retailers that are able to take credit cards without limiting themselves to cash. Limited payment methods = limited customer purchases. Also, as a customer, I previously mentioned in an earlier comment, I really like payments via NFC. It helps to cut down on a wallet cluttered with credit, gym membership, loyalty and reward cards etc. I think the big problem now is this particular market is still young, and not advertised for, and so the general population is simply unaware of it.
10. AJmeBOY (Posts: 34; Member since: 16 Dec 2011)
Are any of y'all familiar with LevelUp by Scavngr? We have them all over Boston. Scanner in a destination reads a customizable QR code from your phone screen (you can even add tips) and it is linked to your bank or credit card. It is also a way for the vendor to create/control a rewards program. For example, I get $3 off my first purchase at XYZ and then I'll receive another $20 credit once I've spent $100.
Great product! Seems to have more utility than Square.