Square Raises $27.5 Million | Hacker News Reader

Square Raises $27.5 Million

blogs.wsj.com

66 pointsssclafani27 comments

Also, we're hiring: https://squareup.com/jobs

Square is a great place to work. It's an awesome team that's working on solving a big and real problem. On the server side we're mostly writing Ruby and practice pairing, TDD and aggressive refactoring. We're also looking for talented iOS and Android developers for the client side. If all this sounds interesting, feel free to email me: zach -at- squareup.com

All smartphones will have NFC chips in the next year or two which will allow payments from your phone. I see a much bigger future in small merchants using that than a card swipe via audio port, but maybe Square will have an NFC solution as well.

Square's goal is to be device agnostic. We're definitely thinking about NFC and we're looking forward to NFC capable phones hitting the market. Hopefully the Nexus S will get upgraded to be transmit capable soon and we can do some neat things with it.

Credit cards are going to be the best form of payment for vendors for another decade.

Even if next year all smartphones have NFC built-in, it will take many more years before there are enough users with NFC to make it worth supporting for a small vendor. Besides, just having the capability doesn't mean a user has created an account -- and connecting to your cell phone bill doesn't count.

Magnetic cards will surely be around for a long time, but the second NFC comes out on the iPhone 5 (or 6), which Apple has hired a lot of NFC engineers for, I think it will be the thing to have for all merchants. And many do already - my BofA card has an embedded rfid which I have used at a lot of places with non swipe readers. They have been widely used in Japan for the last decade.

My point is the playing field will be much more open, because it will be only a software solution, not a hardware+software solution which has more barriers to market - There could essentially be a Visa merchant app that accepts payments from other phones.

Not necessarily. NFC isn't really necessary for mobile payments to work. The product I'm working on is a good example of why.

http://www.facecash.com

Using the audio port is clearly a "wedge" into the market while smartphone technology catches up to support this kind of thing natively. Would you rather wait to build a market and startup or would you rather already be the market leader when the supporting tech is available?

Can somebody tell me who the target market for Square is: - For brick and mortar stores, obviously this is not the answer. - For payment to friends online transfer is far easier than carrying hardware in my pocket. - For online stores obviously there are many choices and many of them better. Is there some other advantage to Square that I dont understand?

Plumbers, electricians, photographers. Anyone who needs to physically meet their customers outside of a traditional shop/office.

As a Square customer through the non-profit cooperative I help run, I can tell you that we chose Square because they are a quick and inexpensive method of accepting swiped card payments from our members at a monthly meeting. Many providers offer mobile payment solutions, but at a cost of $25-50 per month in addition to the discount fees. Square's lack of a monthly charge (even with the slightly higher discount rate) is a big deal for an org with a sub-$1000 budget.

Plus, they accomplished something PayPal couldn't: Creating an account for us that didn't result in a subsequently-frozen account and reams of paperwork being faxed to an abyss.

Square is setting themselves up as an absolutely prime acquisition.

Square is innovating the features that small businesses care about, building a dead simple interface around it, and expanding the traditional definition of "small businesses" that can do this affordably to babysitters, dog walkers, etc.

EDIT - Sorry to ramble but I am lit up by all that we can learn from Square's biz-plan to build an incredible business that's a no-brainer $1b+ aquisition target:

a) Find an entrenched, old school market like merchant processing.

b) Show up with such compelling technology and such a simple billing model (that is still wildly profitably) that you get incredible free press to drive aquisitions.

c) Prequalify the market by understanding that winning or making a DENT means an easy $1B aquisition target for said entrenched monsters.

END EDIT

I wish I had $25m to have led this round myself :)

The problem they face is that their technology is simple enough and they have no real barriers to entry. If their model proves successful expect to see a lot of other competitors with similar hardware all competing on rates with them. That will seriously drop the margins.

I like them as a company and wish them well, but I could also launch a competitor to them if I felt so inclined. And that has to be a problem for them.

I think you underestimate the complexity of the payments space. It's pretty heavily regulated by the federal government (OFAC, AML), the payment card companies (MATCH, PCI) and local governments (MTLs, tax laws). Going through the audit process for PCI in particular is pretty rough. On top of that, designing, building and mass-producing a physical device affordably is pretty tough to do.

All that being said, you should definitely give it a shot. Working on payments technology is a blast.

Well you're right that I know nothing about the regulation aspect of it. But I do know a thing about the hardware production side of things (what my startup is doing). I know enough to say that an existing player in the credit card processing space (regulation problem solved) could find consulting shops to build a audio-port credit card scanner for them. Or 30 pin connected scanner. Or usb connected scanner.

And while I doubt they would have a brilliant product design like Square has, they only need to charge slightly less per transaction to get merchants on board.

I think you're committing a fallacy that's common when people analyze startups - just because a company "could" do something - based on your outside perception of their resources and goals - doesn't mean that they will. As I'm sure you know, mass-producing a consumer electronics device is an entirely different ballgame than paying a consultant shop $20K to make a working prototype. For an existing player to do this would require strong leadership from the top, in order to get buy-in from every level of the organization; hiring of key personnel who are skilled in a field that is outside the company's core competency; money for salaries, product development, marketing, etc.

Why didn't Intuit just build a better Mint? Or Google a better Youtube? Or Salesforce a better Heroku? Surely they "could" have done those things?

I understand what you're saying, and I would never have claimed the same about Mint or Heroku (okay, I may have for YouTube).

I think your argument hinges on the square device being complex. Let me break down what's inside:

A piece of plastic, a single sensor, 2 wires, and a 3.5mm jack. That's not exactly "consumer electronics".

And yes there are consultant firms who could drive the entire production of this device, from design to production, for a large company that can't rally the internal resources.

"but I could also launch a competitor to them if I felt so inclined."

Do you have the experience to make the card-reader hardware? The iOS software? Do you have the cash to have the device produced for sale?

Perhaps you do have all those things at your disposal, but the vast majority of people don't. I would say that simply by virtue of being hardware, the barrier for entry is at least high enough to eliminate most of the "garage hacker" types.

Clearly garage hackers are not their primary concern, and it's a strawman argument to imply thats what I was saying.

Anyone who is already in the card payments market can answer yes to those questions. And they have the advantage of already having the back end payment processing heavy lifting AND existing relationships with real customers.

Sure, none of the existing players wanted to get into this space and be disrupted - or perhaps even able to come up with this creative alternative mechanism for taking benefits.

But we're now seeing them take notice, switch gears and offer rival services. I'm hoping Square does well, but I think they face some stiff competition.

I consider it the "Chuck Close" startup model. When Close started his portraiture, it was considered trite and boring, and there wasn't any competition in it. Same reason Paul Sahre got famous off of gig posters and why they're passe today. Finding a dirty corner to turn into a thriving business is generally the best way to do anything, because it's simply against human nature to go against the grain in such a fundamental way.

If you're really talented, there's less competition. And if you're not, a lower bar.

"The funding is also the latest sign of the optimism around Silicon Valley start-ups, with many companies garnering large funding rounds at high valuations recently." Yeah really. Good timing. If it is in fact a bubble, nice to have the money in the bank ...

Did they get their payment via Square? That would be a hilarious way to eat you own dogfood.

No, by wire. No need to pay those kinds of credit card fees for such a large transaction.

Square does seem poised for success/acquisition but m confused.

Square makes money on credit card processing right? So they have a revenue model. What exactly do they need $25m for?

I'm 100% sure they have a plan. I guess what I'm really saying is there must be more than meets the eye.

Having a revenue model isn't the same as having revenue. The $25M is a runway until either A) their next financing, or B) the point where they're actual revenue will pay for all the brilliant engineers, other salaries, hardware costs, overhead, marketing, etc. will ensure they have more than $0 in the bank at all times.

Also- see http://feefighters.com/square-calculator if you haven't... pretty good calculator to see if it makes sense to switch to square... Surprisingly it actually makes sense for a lot of small businesses - if they can capture the long tail of the market that's pretty cool

Intuit is competing, and they have a huge small biz network already... http://tech.fortune.cnn.com/2011/01/09/intuit-takes-a-swipe-...

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