Square Could Come Into Competition With Apple

There are reports that Apple is about to unveil a service that will allow merchants to accept payments on their iPhones, without the need for additional hardware. At this point, we don’t have details on the service, which makes it difficult to fully assess the impact on competitive dynamics in the space, but within our coverage, Square looks like the company that would potentially be most impacted. Square got its start serving micromerchants that were too small for traditional providers, and this service would likely be focused on this level of merchant. However, over time, Square has moved up market, and merchants with less than $125,000 in annual volume made up only about one third of its merchant payment volume in the last quarter. Additionally, Square’s merchant offering is more expansive than just payment acceptance. We will maintain our $115 fair value estimate and narrow moat rating.