A technology company racing to become the default “wallet” on mobile devices has been valued $3.25bn in its latest fundraising, confirming its status as one of Silicon Valley’s hottest start-ups.
Square, a San Francisco mobile payments company started and led by Jack Dorsey, the co-founder of Twitter, has raised $200m in new funding, said people familiar with the deal.
The company will use the money to focus on international expansion as it seeks to secure its technology as the default “mobile wallet”, facing fierce competition from large global companies which are also searching for ways to turn consumers’ smartphones into all-purpose payment systems.
Square now processes $8bn in payments annually, compared with $1bn one year ago. Its workforce has grown to more than 400 employees, up from 150 last year.
The company was founded in 2009 after an artist friend of Mr Dorsey’s complained of losing a $3,000 sale because he could not accept a credit card. Square’s original product is a one-inch square plastic credit card reader that plugs into the jack of an iPhone or Android phone. Square provides the reader for free, then charges a 2.75 per cent transaction fee.
Small business owners and sole entrepreneurs, from hairdressers to therapists to dog walkers, have adopted the technology. Both US presidential candidates are using it at rallies to capture election donations on the spot, rather than waiting to solicit supporters via email at a later date. Friends in California even use it socially to settle bills at restaurants and pubs.
Square has since developed a payment system for small retailers that uses an iPad in place of a cash register to process payments directly via customers’ cell phones.
The current financing round was led by an unconventional group of investors: Citi Ventures, and arm of the global financial services company, Rizvi Traverse Management, a private equity firm, and Starbucks.
In August, Starbucks began replacing all of the credit and debit transaction systems in its 7,000 US coffee shops with Square’s technology, a landmark deal for the start-up.
One of Square’s biggest competitors is PayPal, the payment arm of ecommerce site eBay. PayPal released its triangular plug-in credit card reader this year and signed a deal with Discover, giving 7m merchants that accept that credit card ability to also accept PayPal payments.
The latest round brings Square’s total fundraising to $341m. Previous investors have included Sequoia Capital and Visa, which made a combined $27.5m investment. Kleiner Perkins Caufield & Byers and Tiger Technology Global Management invested $100m last year, along with $3m from Sir Richard Branson.