Square is close to going public, but it's facing major challenges, including a slew of competitors crowding the market for payments processing.
At small businesses, Square's magstripe reader might be the most recognizeable compared to its peers. It's the white, square gadget that attaches to a mobile device allowing small vendors to accept credit cards. Software linked to that device, as well as Square point-of-sale stands in stores, were used to process $23.8 billion in transactions last year, according to the company's recent S-1 filing with the Securities and Exchange Commission.
"I think the challenge is that each one of those individual businesses is pretty small, so how do you really scale if you're Square?" said Kamran Zaki, president of Adyen North America, whose firm helps process payments for Fortune 500 companies. "I think that volume and some of their revenue numbers seem to be slowing down in terms of growth rates."
PayPal, one of the most widely used payments systems, has its own add-on for mobile devices as well: its triangular PayPal Here credit card reader.
And while PayPal may not be as trendy as Square, nearly half of consumers in the United States use it for person-to-person transactions, with or without additional hardware, according to Aite Group, which conducted an online survey of 1,724 U.S. consumers during the second quarter of this year.
The Clover point-of-sale system is also gaining traction. Its setup can replace a business's bar code scanner, computer, cash register and receipt printer, according to the company.
Clover is an arm of First Data, which processes payments for major corporations and government agencies. First Data processes nearly half of U.S.-based consumer payments, facilitating $1.9 trillion in transactions per year, according to that company's website.
But requiring additional hardware to transfer funds could limit companies' expansion as payments processors, said Darren Hayes, a professor at Pace University's Seidenberg School of Computer Science and Information Systems in New York.
"The fact that there is no additional hardware with Apple's new [person-to-person] payment system will make it more attractive than other payment systems, like Square," Hayes said.
Apple did not respond to a request for comment from CNBC.
PayPal's person-to-person payments app Venmo also works without additional hardware.
Square is facing a crop of start-up competitors as well. Swedish firm iZettle offers a reader and software to process credit card transactions via iOS and Android mobile devices.
And the Flint mobile payments system works by scanning cards, not swiping them, so it doesn't require additional hardware either.
Currently, including hardware and software, Aite Group estimates U.S. households made about 6.6 billion person-to-person transactions amounting to $1.2 trillion in payments in 2014.
But payments processing competitors may not actually be a major concern for Square. The company has seen strong growth in its Square Capital business, through which it offers cash advances to small businesses and gets paid back based on the card transactions it processes. So far, Square has advanced more than $300 million, and 90 percent of small businesses that were offered a second advance chose to accept it, according to a recent S-1 filing.
The company, which is in a pre-IPO quiet period, declined to comment.