IPO

From its humble beginnings as a project at California based TechShop, Square, founded by Jack Dorsey, has become the main alternative to traditional credit card terminals. These terminal were expensive, often required credit checks and contracts, and had large processing fees. Square wanted to provide service providers and small business owners an inexpensive way to accept credit cards with reasonable processing fees. Their simple headphone-jack credit swipe has now grown into mobile payment receivers, full POS terminals, and even a food delivery service.

Square feels that momentum is on their side and that the time is right to become a public company; it has filed the paperwork for their IPO, believed to be worth up to $275 million. While the company is still not profitable, losing $77.6 million in the first half of 2015, Square believes it offers a compelling investment opportunity. It’s losses continue to shrink and making the move to a public company will provide Square with some additional working capital. No word on when shares will become available.

Square offers a very competitive payment processing option for small businesses with the low cost of equipment and small processing fees taking a lot of weight off of proprietors. I am always surprised though to see how many business are still using traditional terminals that cost hundreds of dollars and are more expensive to operate. If Square can figure out how to convert just a small percentage of these businesses, it is easy to see how the company’s bottom line can quickly improve. The key to creating these conversions might just be the requirement to begin accepting EMV (chip-and-signature) payments. Starting this month, business owners are now liable for credit card fraud from swiped cards; that is a huge risk for a small business. Given the necessary cost of equipment upgrade, Square’s margin priced $50 Bluetooth reader for both mobile payments and EMV seems like a no brainer.