Way to Pay
Apple Pay has put a certain type of Silicon Valley start-up under the spotlight: payments companies. The biggest of these is Square, valued at $6bn after a new round of funding Friday. Far from being cowed by Apple’s move into its turf, Square’s valuation has risen by a fifth in the last six months. In fact its valuation growth is accelerating:
What Square does is provide retailers with point of sale systems (credit card readers), and it plans to make its systems compatible with Apple Pay. This could be expensive; Square does not currently support the near field communication chips that Apple plans to use. For every payment processed –reportedly $30bn annually – the company takes a cut of 2.75% or more, implying roughly $825m in revenues (most of this is paid on to credit card companies and banks). Square’s valuation, at seven times revenues, could look attractive if Apple Pay is simply expanding the pie for all parts of the payments value chain. But what if it’s not? Apple tends to be very, very good at capturing more and more of the value chain for itself. That could shrink the Square.