For some startups, going public is a sort of victory lap. For Square, it's more like a trial by fire.

As the mobile-payments company prepares to IPO, it's still not toally clear how it can compete not only against industry players such as Paypal and Alipay, but also against major credit card companies such as Visa and Mastercard, which also process payments. 

“They’re a very creative company but we have to see more when they disclose their filing,” says Kathleen Smith, principal of Renaissance Capital, a manager of IPO-focused Exchange Traded Funds. 

"It's not just the private companies to be reconciled here, there are public companies," she says.

Media outlets including Bloomberg and the Wall Street Journal reported Friday that Square had confidentially filed for an initial public offering. Square chief executive Jack Dorsey – also the interim CEO at Twitter – previously said the company was not going public this year. 

Smith notes that the industry is changing in some ways that could benefit the credit card-reading device startup, as more people grow comfortable with making electronic payments. On the other hand, electronic wallets are making payment without plastic all the more common. 

As Square crosses the threshold into public trading, it will face competitors with their own momentum. Paypal went public earlier this month and shares have been performing well according to Smith. Alipay, a unit of Alibaba's financial arm Ant Financial slated for public offering in China within the next two years. SSmith said more than half of transactions that happen in China go through Alipay. 

Then there’s First Data Corp., founded in 1971, which Smith says is the leading processor of credit and debit cards for banks and financial institutions. KKR & Co. took First Data private in 2007 and earlier this month filed for its IPO, according to Bloomberg.

Smith says First Data – by no means a startup – brings in $11 billion in sales, according to Smith. Bloomberg reported that First Data’s anticipated offering to public investors could be the largest IPO this year.

So the question, says Smith, is whether Square can be a disruptor on the point-of-sale end of payments processing the way Paypal and Alibaba have been on the e-commerce side. 

Smith estimated Square’s revenue to be somewhere in the hundreds of millions of dollars range. Reports surfaced last year that revenue problems had forced Square to put off an IPO, according to Fast Company.

Paypal, valued on the public markets at $45 billion, could set the bar for a public-market value of Square, according to the Journal. Investors valued Square at $6 billion last year, the Journal reported.

Venture capital investment into fintech companies across the globe tripled between 2008 and 2013 when it stood at roughly $3 billion, according to Fortune. By 2018, investment is expected to reach $8 million, the magazine reported. 

With Square filing confidentially, Smith says it’s ultimately hard to see how the company might stack up against the competition. 


Published on: Jul 27, 2015