(Getty Images)
HAILING SQUARE: Mayor Bloomberg and Jack Dorsey . (
)
(
)
There’s nothing Square about this company when it comes to the mobile-payment industry and its potential in a future $1 trillion marketplace.
Square, the electronic-payment device maker and service founded by Jack Dorsey in 2009, raised $225 million in its recent Series D round of financing, earning a $3.2 billion valuation.
And this sky-high valuation came before the company had any comment on its two latest deals.
Dorsey, a co-founder of Twitter, announced a $25 million investment by Starbucks, which enables Square — whose primary focus has been making credit-card transactions possible for small business owners — to now have access to the masses at more than 7,000 participating company-owned Starbucks locations.
The stores will utilize Square for its credit- and debit-card transactions, as well as make themselves available on Square’s Pay With Square app.
And last week an analyst reported that the company was expanding its deal with New York City’s Taxi and Limousine Commission to outfit 1,200 additional cabs with its mobile-payment system.
“Square will be rolled out in phases: All new cabs will come standard now with an iPad and Square as the payment method; some 1,000 newer cabs will be retrofitted over the course of the next six months with iPads equipped with Square. Older cabs nearing the end of useful life [would be] exempted,” said Sam Hamadeh, chief executive officer of PrivCo. Square had no comment on the report.
Though the partnership may not necessarily be profitable from the start in terms of revenue. Square’s pay-per-transaction rate — typically 2.75 percent — is likely closer to 2.05 percent per transaction for Starbucks, according to Hamadeh. This is likely similar to what Starbucks was paying its current processor and at cost for Square.
So while this is certainly one big step for the mobile-payments space, time will tell if the partnership is profitable and if mobile devices will soon be as much of a routine as drinking a cup of joe.
Thomas McCrohan, managing director of equity research and payments analyst at Janney, notes: “Square is partnering with the most successful mobile-payment use-case in the United States, and so it extends Square into a category they were otherwise not active in before.”
Indeed, Hamadeh notes that while the partnership may not be profitable from the get-go, it certainly checks boxes for both companies. For Starbucks, a partnership with Square means it can “position [itself] as part of the next wave.”
Starbucks hopes Square will help it “reduce the walk-out factor,” notes Hamadeh.
There’s one other unforeseen benefit for Square: Apple’s decision not to put a Near-Field Chip technology in its iPhone 5, which will allow Square another year of growth before the next-version smartphone product comes to market. Some other smartphone makers have included the NFC chip.