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The mPOS platform provider Square’s recent, much-publicized IPO is being pored over by analysts and the media to decipher its meaning for the broader technology investment market, particularly in terms of tech “unicorns” – start-up companies valued at more than $1bn. Square’s IPO has been unusually dramatic, reflecting the many struggles the company faces, and will have repercussions on investment strategies. Ultimately, though, it tells us as much about the technology investment community as it does the opportunity that remains in the payments market.

Disruption does not always equal long-term success

Square was a quintessentially disruptive player when it launched its first dongle in 2009, shaking up the payments acquiring market in terms of both its technology and its go-to-market approach. It has had industry-wide repercussions across payments, beyond just the acquiring space. Investors were quick to laud Square as an example of what was possible in new app-centric services built around smartphones.

Despite its huge impact on the payments market, Square has since been hobbled by numerous factors, including its commercially unfavorable relationship with Starbucks, its unsuccessful consumer wallet, and the challenging economics of the micro-merchant space. Crucially the company missed its opportunity to go global with an EMV-compatible service and the market has now been flooded with similar products, often with more competitive features and pricing models. As Square now tries to pivot toward being a more enterprise-focused platform it faces extremely stiff international competition. Growing numbers of POS platforms and vendors, including giants such as VeriFone and Ingenico, are following Square’s lead and in many instances improving upon its service.

Square’s IPO has had unusually dramatic changes in price: the initial share price offering was significantly lower than expected, but the price ultimately rallied on its first day of trading. Some are taking Square’s volatile IPO as a (hoped for) sign that the exuberance of the fintech start-up market may finally be settling down to a more sane level after the exceptional highs of recent months. It will likely take some time for the dust to clear before the market gets a clear view of where Square stands as a publicly traded company.

The financial investment models driving the fintech space are open to serious debate, but this should not detract from the overall level of opportunity in the payments market and the continued opportunity for innovation and disruption from both new market entrants and established players. The scale of the opportunity in payments remains enormous; this has held up Square’s valuation, despite the underlying challenges the company faces.

The key to investment in payments in the long term is understanding that there is unlikely to be an “Uber of payments” and that expectations need to be set accordingly. As Square demonstrates, start-ups can be hugely disruptive, but the scale of competition and the enormous fragmentation in the global payments market mean that long-term success is not a given. Although the financial services space remains ripe for disruption, the market has been agile in terms of learning from start-up successes and acting on these lessons. Having a clear strategy, service, and revenue model will ultimately prove the most successful approach above and beyond the expectations of Silicon Valley.


Further reading

ICT Enterprise Insights 2015/16 – Global: Payment Issuers and Acquirers, PT0063-000011 (November 2015)

Merchant Attitudes to Emerging Payments, IT0059-000014, (June 2015)

Assessing the Long-Term Impact of mPOS on the Payments Markets, IT003-000604 (February 2014)


Gilles Ubaghs, Senior Analyst, Financial Services Technology

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