In June 2013, research firm Gartner Inc. released a report saying it expected a 35 per cent jump in the volume and value of mobile transactions between 2012 and 2017. And in 2013 alone, it was expected to become a $235.4 billion market worldwide, so it’s hardly surprising some companies might be eyeing Square with some interest as the space continues to grow.
Yet while Square has staunchly denied it’s been considering a buyout, the possibility that one of the most recognizable brands in mobile payments was up for acquisition does raise some questions about where the industry is heading.
“[Square] was the first to enable mobile payments in terms of accepting a credit card on a mobile device. So you know, we have nothing but tremendous respect for Square and [founder] Jack Dorsey for what he’s done to the payments industry, in terms of disrupting it,” says Michael Gokturk, CEO of Payfirma Corp., a Vancouver-based payment solutions provider.
“If they were to be acquired, it’d be good news, because that’s further validation of mobile payments as a sustainable and real business.”
Payfirma allows merchants to accept credit card and debit card payments online, in store, or through a mobile point-of-sales (POS) terminal. For example, if customers are browsing in a store, they can pay for purchases by finding a salesperson armed with either a smartphone or a tablet.
The company is multi-channel – and that’s something that differentiates it from Square, Gokturk says.
“If you’re doing mobile payments just on its own, much like Square has done, you really need tremendous volume [in transactions] in order to be a sustainable company or make any money,” he says. “Mobile payments on its own as a business is absolutely sustainable, but it’s just going to take millions and millions of customers in order to make it cash-flow positive.”
“However, in our strategy, the way we look at the mobile payments landscape, it’s more part of an overall payment strategy, meaning mobile, e-commerce, and in-store payments under one account.”
Needing millions of transactions to stay in the black is just one of the hazards of the payments industry, says Carl Howe, an analyst with Yankee Group. Profit margins tend to be thin, since payment solutions providers take a small percentage of each transaction as their fees.
“The big problem is the chicken and egg problem. Nobody wants to deploy your POS terminal unless I know there are a lot of people who are going to use your mobile payments method, because almost all of them seem to require different types of hardware,” he says.
“And at the same time, nobody wants to use your mobile payments method unless there are lots of POS terminals. So the real challenge is bootstrapping the infrastructure to take mobile payments and make that a really compelling value proposition.”
If Square ever did have acquisition plans on the table, that wouldn’t really surprise him, Howe adds. Startup founders often build their companies with an eye towards acquisitions, and that’s just a “natural evolution” of where a startup might go, he says. And while Square has been a well-known player in this space for the past five years, it’s still a startup.
Still, he doesn’t see the mobile payments industry as being limited to just a few big players. It’s not a “winner take-all market,” although there will be some players that end up dominating the space, he says.
For Gokturk, those players will be the companies that give merchants the most enticing products and services.
“It’s not about the size of your business or the size of the company … Many players, the little guys and the big guys, are all trying to get into mobile payments, and it’s just a matter of time,” he says.
“Anyone who can offer merchants what they want, as opposed to just throwing stuff to the wall and seeing what sticks, are the ones who will truly win in the end.”