PayPal Is Said to Be in ‘Early Talks’ to Acquire Square

by Ian Kar
Follow @iankar_

PayPal CEO Dan Schulman is apparently exploring several potential acquisitions, including the purchase of Square, sources close to both PayPal and Square have told Bank Innovation.

Our sources tell us the acquisition talks are in the “early stages,” but are described as serious.

Bank Innovation has reached out to PayPal and Square for comment. Jack Dorsey, Square’s founder, tweeted, subsequent to publication, that the news was “false.” (Note that Square similarly denied reports by The Wall Street Journal earlier this year that Google was negotiating to acquire the payments company, despite confirmations to the contrary.)

PayPal is fresh off the news that it will be spinning off from parent company eBay in 2015.

In the event of an acquisition, it appears that Square would keep its brand name, since it is popular among small businesses, though sources say that the two could be discussing a merger or a strong partnership, as well. But, this deal is “far from done,” even though talks have been described as “intense.”

“PayPal’s not spinning off for awhile, so they have time,” one source noted.

No word yet on an acquisition price, but one can assume that’ll it’ll be a bit higher than $6 billion — Square’s most recent valuation after raising $150 million earlier this month, according to The New York Times. It could be a pricey acquisition for PayPal and industry insiders expect that, if a deal is reached, it “should” close before the spinoff.

“If and when they [PayPal and Square] do this deal, they should just do this in one fell swoop and get back to work,” a source said.

Most industry observers seem bullish on Schulman and his future at PayPal. While he may not have be the most widely recognized candidate for the position, he is extremely capable and extremely pro-innovation. According to sources who have spoken to Schulman during his time at American Express, Schulman spoke openly about how acquisitions can breathe new life into a company.

As for Square, its recent funding is a short-term bridge to help the company finance its future, as it continues to pursue new initiatives. Square Capital, for example, has been popular among small business owners, and Square is reportedly working on a new register that is EMV-compliant, as well as on plans to accept Apple Pay and bitcoin transactions, both of which could help the company increase its transaction volume figures. However, a few early investors are pushing for Square to find an exit … and find it fast. Rumors from sources close to Square board members and early Square investors hint that Square may be running out of “burn money” — cash reserves to fund operations until Square turns profitable. The Wall Street Journal said Square’s burn rate was about “roughly $100 million.”

PayPal and Square could be a blessing in disguise for both companies. Square has quite an expansive network of small business merchants that use Square’s commerce platform, while PayPal has the tech stack in Braintree and the P2P payments vehicle in Venmo to make it enticing for Square, as well. With both companies technically accepting Apple Pay transactions but basically left in the cold, a PayPal-Square relationship — at whatever level — would be a boost for both companies.

UPDATED: October 14, 2014, at 12:52 pm ET