October 16, 1:00 am EST – PrivCo has learned that, effective this February 15th, New York City's current taxi cab payments contract will be allowed to expire so that the taxi mobile payments market will be open to free-market competition. Beginning this Feb. 15th, any payment processor that meets new rules to be issued soon by the Mayor's Office and is certified can all compete for taxi cab payment installs. And despite mobile payments startup SQUARE's (PrivCo Private Company Ticker: SQUAREP) early pole position to win a big share of the business next year due to it being the only new participant in this year's NYC pilot program for mobile payments startups to power taxi payments, PrivCo has learned that Square just officially and abruptly agreed with NYC to end its participation in the pilot taxi payments program four months early. In a private letter from Square to the New York Taxi & Limousine Commission sent just this past Friday Oct. 12, obtained by PrivCo, Square stated that it is ending its pilot program participation early in order to “pursue a different hardware and software solution for [its] Taxicab Passenger Enhancements Program (TPEP) offering,” (that is, the new free-market program beginning this Feb. 15th). The series of events may have been accelerated by a leak from PrivCo published last week that big changes were imminent between Square and the NY Taxi Commission.
In a phone interview with PrivCo last Thursday, Allan Fromberg, Deputy Commissioner for Public Affairs at NYC TLC, confirmed that once the current exclusive taxi payments contracts with VeriFone and CMT expire on February 15, 2013 there will be no more government contract awards for the NYC taxi payments business. Instead, the City of New York will revert to a free-market system, with any vendors meeting (yet to be announced) standards able to compete for taxi cab payments installations after Feb. 15th. While this would initially favor the current incumbent providers, privately-held CMT, and VeriFone (NYSE:PAY), Square appeared until today to have an advantage of being the only other company currently accepting payments on some NYC taxis with the approval of the NYC TLC. That, plus the critical data Square was able to collect from its pilot taxi payments program participation this year, and the expiration of CMT’s and VeriFone’s exclusive contracts in 4 months, it could have been logically deduced that Square would be positioned to compete for a large share of the new taxi payment systems (as many as 1,200 within the first year - or about 10% of the market - at first glance). However, Square now abruptly removing itself from the pilot program 4 months early raises new questions: is its currently mobile payments technology "up to snuff" (as one Square competitor told PrivCo) to meet the soon to be announced higher standards for officially approved taxi payment vendors? Or is Square simply gearing up for a massive new rollout come February 15th, that could see Square taking a large share of the payments business on over 13,000 cabs that make up the world's largest taxi market: New York City?
To put this in context, spokesman Pete Bartolik of VeriFone, which is contracted to service payment and entertainment solutions - currently for 6,800 of NYC's 13,000 taxis, according to VeriFone - told PrivCo today that "the TLC did this whole TPEP project...It was an initial five year contract expiring February 15, 2012, and that was extended an additional year now ending Feb. 15, 2013. Four companies were oringally approved for taxi payments contracts: VeriFone, CMT, and two others that didn't last very long, so as practical matter it was exclusively only VeriFone and CMT for the last six years." VeriFone's Pete Bartolik added "the contract expires February 15, 2013. We haven't been given the guidelines yet. We are waiting for them, and we plan to be ready. VeriFone is planning on submitting for approval the moment the guidelines are published."
While Square was seen as having a pole position given their participation in the pilot program, its early end to the program raises questions surrounding the feasibility of their technology, and whether they will continue to pursue it next year when contracts expire. On the other hand, Square's early end to the pilot program might be the direct result of events that transpired last week, when PrivCo leaked information from the Mayor's office last Tuesday that big changes were imminent between Square and the NYC Taxi payments business, upon which the TLC made it very clear that no contracts were to be won, and that there will be open competition to meet the TLC’s soon to be announced hardware and software standards. As a result, Square potentially understood that it would need to alter and improve its product offering, responding to the TLC on October 12 that “it would be commercially unreasonable for Square to pursue a new hardware and software solution for a future TPEP offering while at the same time continue to support the [current pilot program].” But a Square competitor told PrivCo that Square's current technology "simply doesn't cut it, and isn't up to snuff" to meet stringent taxi payment and entertainment requirements.
Calls and emails by PrivCo to Square were not returned by publication time.
Despite Fromberg claiming to PrivCo last week that there were no other applicants to the 2012 taxi payments pilot program to his knowledge, and no other accepted parties, VeriFone has confirmed to PrivCo that they in fact are also taking part in the pilot program alongside Square, using a tablet computer they built themselves to outfit some 30-40 NYC cabs.
PrivCo CEO and Founder Sam Hamadeh stated, "The TLC's new approach is precisely the type of free market government solution Mayor Bloomberg has been justifiably lauded for." The key questions now are will Square produce the mobile payments hardware and software necessary to meet stringent NYC taxi payments standards (which include GPS tracking, entertainment options, etc.). As VeriFone's spokesman told PrivCo today: "We wish taxi payment were so simple. But the reality is that there are lots of complexities involved, perhaps more than Square realizes." Will Square's product innovation - and Dorsey's relationship with Mayor Bloomberg - win the race?
(New York City Mayor Michael Bloomberg riding with Square and Twitter Founder Jack Dorsey in NYC taxi equipped with iPad with Square credit card reader: September 2012)
Key Financial Data On Square, Inc. (Source: PrivCo):
Business: Mobile Payment Processor
Founded by: Jack Dorsey
2011 Revenue: $42.5M
2010 Revenue: $2M
Revenue Growth (2011 vs. 2010): 2025%
Post Money Valuation: $3.225B
Pre-Money Valuation: $3.0B
Monthly Transactions Processed: $670M (October 2012)
Employees (2012): 420 (68% YOY Growth)
Employees (2011): 250