More so than any other year, 2016 will be a proving ground for Square Inc.

Square has long enjoyed the first-mover advantage that came with democratizing payment acceptance. But as the payments industry advanced and Square's own needs became more complex, the company is more challenged than ever to stay relevant, even to the merchants who accept credit cards only because Square made it easy.

Square was able to disrupt the payments industry in part because it was willing to blur the line between small merchants and consumers, putting its mobile card readers into the hands of business owners that the traditional payments industry had long overlooked. Another factor in Square's favor was the confusing state of its finances; though experts insisted its business model was unsustainable, the company continued to win over merchants and signed a very prominent deal to process payments for Starbucks Corp.

Now the landscape has changed. As a public company, Square had to admit that its arrangement with Starbucks had become unprofitable. Its star CEO, Jack Dorsey, is now moonlighting as the CEO of Twitter. And the advancement of EMV security and Near Field Communication-based mobile wallets like Apple Pay mean that Square's own hardware has to get more complex — and thus, more expensive — to meet the needs of the market.

Its first weeks as a public company are already off to a rocky start. Square didn't hit the amount it hoped to raise in its initial public offering late in 2015, but it doesn't change the fact that it now has investors to please on an ongoing basis. Those investors cautiously approached the initial higher valuation of between $11 and $13 a share. Square's shares were ultimately selling at $9 in late November.

The IPO valuation result caused one market observer to say Square was coming across like any other payment processor rather than a groundbreaking technology company.

Square has to reclaim its thunder quickly in the year ahead, said Gil Luria, analyst with Los Angeles-based Wedbush Securities.

"For the first time, all of Square's information will be public and they will have to provide quarterly updates," Luria said. "Investors and industry observers are going to be very keenly watching to see if Square can continue to grow, add merchants and make the businesses for these merchants profitable."

The most important task for Square in the coming year will be to show investors the company can  "extend itself beyond payments and small-business lending to provide ancillary services," Luria said. Investors will mostly be asking if the company "can develop products that merchants are interested in that can drive Square's growth," Luria added.

Square's earlier attempts to diversify its offerings have had mixed success. It shut down its consumer-facing mobile wallet after reinventing the product several times; it failed to sustain a monthly fee structure for low-volume merchants; and its product has a large number of rivals that are willing to focus on niche markets that may feel left out by Square's one-size-fits-all product.

More recently, Square has focused on expanding its small-business offerings, such as by offering capital and tools for building an online storefront.

Throughout all of this, Dorsey has been Square's public face, but he serves the same role at Twitter, which has required a lot of his attention. In early October, Dorsey penned a letter to Twitter employees announcing plans to lay off 336 people worldwide in order to pursue its future goals.To placate Twitter's remaining staff, Dorsey is giving a third of his stock in Twitter to the employee equity pool.

In a possible hint that Square and Twitter could partner for future projects, the two companies established a system in early September for political candidates to solicit donations through social media.

But Square has its own dirty laundry to air out. When filing for an initial public offering, it revealed that its processing relationship with Starbucks (which never used Square's card readers to accept payments in stores) was losing money and nearing its conclusion.

"When the information came out, I think it was shocking to investors as to how bad that deal was and how badly it had gone, but everyone is pretty much excluding it from the numbers now," Luria said.

Square reported transaction revenue of $123 million with Starbucks in 2014, but transaction costs at $151 million. The relationship is scheduled to end in the third quarter of 2016.

"Investors are already looking past the Starbucks numbers," Luria said. Square presents numbers excluding Starbucks and most investors have already taken that out of consideration, Luria added.

Like other companies in the mobile card reader field, Square had to support EMV-chip card acceptance.

Square announced a new EMV-enabled mobile card reader for $49 — a steep price for merchants who had previously received Square's hardware for free — but offering to credit small merchants on the cost if they use the reader for at least three months.Square also developed an EMV card reader that can accept NFC payments but not magstripe cards, and is marketing it as a complement to Apple Pay.

Whether those types of promotions will fly with investors in the future remains to be seen.

"As a private company, Square's only goal was to grow as fast as it could and add more sellers," Luria said. "As a public company their goals are much harder to achieve and much more short-term focused."

In addition to showing positive quarterly reports and short-term success, Square will also have to prove the business can increase its profitability in the future, Luria said.

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