- Payment processing has gotten crowded since Square was founded
- With focus on small businesses, its `scale is minuscule'
You have a hankering for spicy tuna rolls and hand the credit card to the cashier at the neighborhood Japanese restaurant, who swipes it on a device plugged into an iPad.
What looked novel a few years ago, now is commonplace, in large part because of payments company Square Inc. It took an old-school business -- with big, expensive cash registers that were complicated to hook up -- and gave the process a low-cost, low-hassle approach.
Yet as Square prepares a roadshow for its initial public offering expected by year’s end, six years after it was founded, the industry has become increasingly crowded. Below are about a half-dozen companies, big and small, that are vying with Square in payment processing.
First, though, here’s how it works: The Square Register software app is free and the hardware is "affordable," the company says, if not free to the retailer. Square then steps in as the merchant of record on behalf of the business, acting as the go-between for the customer and the bank or card network to manage the payment process. Square takes a 2.75 percent cut of the transaction.
About 95 percent of Square’s revenue comes from payments and point-of-sale services, according to the company’s recent IPO filing. Most of its customers are small businesses, with almost two-thirds generating less than $125,000 a year in gross payment volume. About 11 percent bring in more than $500,000. While Square, as an early mover, has done well in this market, the $32.4 billion in payments it processed in the year through September is well below some of its competition, said Gil Luria, an analyst at Wedbush Securities.
"Their scale is minuscule compared to the other big processors," Luria said.
The increasingly crowded and fragmented mobile point-of-sale industry also is becoming commoditized, according to David Ritter, an analyst at Bloomberg Intelligence. That’s why Square and many of its competitors are expanding into services like offering cash advances, analytics and marketing tools for their business customers.
Here are some rivals Square is up against:
First Data Corp.: The company, which recently completed an IPO that raised about $2.6 billion, counts point-of-sale software and hardware in its suite of products. The company makes most of its money -- $11.2 billion in total revenue last year -- from processing payments for merchants and held the top spot by that measure last year, with 23 percent of the market, according to Bloomberg Intelligence. Lately, First Data has been marketing its Clover touch-screen point of sale system.
Vantiv Inc.: With $9.4 billion in market value, Vantiv offers point-of-sale terminals and other technology for small businesses -- one of Square’s biggest customer bases.
PayPal Holdings Inc.: Having split from EBay Inc. in July, PayPal is expanding aggressively, gaining such big-name customers as Macy’s. PayPal also has moved into an area Square is attacking: cash advances -- or loans -- to the merchants that use its other services.
Heartland Payment Systems Inc.: Heartland’s focus is on restaurants and hospitality customers, offering traditional and tablet-based point-of-sale systems. Its customers include Taco Bell and Arby’s, which helped Heartland generate $2.3 billion in revenue last year. Focusing on a specific industry like Heartland does is a common way for payments companies to get noticed in the increasingly busy landscape.
Poynt Corp.: Having raised $28 million in series B funding last month, Poynt is building a terminal that allows for payments using a mobile phone or a chip-embedded card. The company counts former Apple Inc. and PayPal executives in its ranks.
Revel Systems Inc.: Revel, which also bases it system on the iPad, adapts its technology to specific types of businesses, like grocery stores or restaurants. Goodwill and the grilled-cheese restaurant chain, Melt Shop, are some of Revel’s customers.
ShopKeep.com Inc.: After raising $60 million in July, ShopKeep bought out restaurant-focused competitor Ambur, adding 1,500 customers to reach more than 20,000. ShopKeep’s software helps its customers track data like inventories and sales information over the Internet.