New funding round to value Square at USD4 billion – Rumour

In negotiations with potential investors

Square is reportedly seeking to raise a new funding round that could value the mobile payments firm at up to USD4 billion, more than four times the USD1 billion valuation the firm landed in its last major funding round just 10 months ago. All Things Digital, citing sources familiar with the situation, claims that Square is still in negotiations with potential investors and that the USD4 billion valuation is at the top end of expectations, with the actual figure more likely to be around USD3 billion. Nevertheless, the rumour highlights the huge interest in the mobile payments space as a range of firms, from Google to PayPal to American Express, seek to gain a foothold in the market.

Currently, a range of different technologies are battling it out for dominance of the rapidly expanding mobile payments market, with companies such as Square and iZettle offering card readers while services from the likes of Google Wallet are based on NFC. A number of analysts have previously forecast that NFC-based mobile payments will become the standard in the market, but so far there is little sign of this happening. Very few devices currently include NFC, and those that do are at the high-end of the market, limiting the adoption of payments based on the technology. There is mounting speculation that the next iteration of the iPhone may include NFC, which would help to boost its penetration, but Apple is not commenting and it is by no means a certainty. The reluctance of a firm like Apple to integrate NFC into its devices suggests that the market remains wide open, with no technology winning out yet.

Square offers a card reader that plugs into the headphone jack on mobile devices such as smartphones and tablets which, alongside an app, enables anyone to handle credit and debit card payments. The firm has grown rapidly since its foundation in 2009 by Twitter co-founder Jack Dorsey, with the most recent figures from the startup claiming that it processes more than USD4 billion in mobile annually and has signed up more than 1 million merchants. Square is also seeking to boost adoption of its mobile payments solution, recently rebranding its app as ‘Pay with Square’ in a move designed to clarify what service the app performs and including geo-fencing technology that alerts users to nearby shops and restaurants that accept Square.

News that Square is on the lookout for further investment suggests that the firm’s expansion plans are going well. The firm has previously said that, having concentrated on the US in 2011, it will look to roll out in international markets this year. However, any such move is likely to prove highly costly, with Square needing to comply with a range of security standards and regulation across different markets. European competitor iZettle also highlights that, in Europe in particular, the credit card market is dominated by cards with chips, rather than magnetic strips, making the transition still more challenging. “The chip-card market is a different kettle of fish with different security standards and regulation to comply with,” says iZettle CEO Jacob de Geer, speaking to StrategyEye recently.

Square has previously raised more than USD170 million in VC funding. Its largest funding round came in June 2011, when the firm landed USD100 million in a round led by Kleiner Perkins, with the startup also raising undisclosed investments from Visa in April 2011, as well as Virgin boss Richard Branson in December.

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