Sweden-based mobile payment firm iZettle is often compared to Square. And the comparison is certainly not entirely unwarranted, as both firms are known for essentially the same achievement: enabling small businesses and micro-merchants to accept card payments, albeit in two very different marketplaces with rather different challenges.
In the unitary but extremely large small business market in the U.S., Square managed to inspire hundreds of competitors into existence. In the highly fragmented European marketplace, iZettle faces limited competition, because the regulatory bars for entry are that much higher.
"The fundamental difference in the U.S. and Europe is that, from a regulatory perspective, Europe is much, much more complex,” Jacob de Geer, iZettle’s CEO and co-founder, told MPD CEO Karen Webster in an interview earlier this year. “The effect of that is there are three European mPOS players, whereas in the U.S. there are over a hundred."
“We have found that scalability in Europe is the secret sauce and it is still pretty complicated and we were one of the few firms that has managed to crack it.”
iZettle’s dedication to cracking the European — and now Latin American — code in some ways explains the very different path the firm has taken from its American counterpart. Square’s approach to disruption has involved swinging wide — with a consumer-facing mobile wallet, high profile pair-up (and parting) with Starbucks, P2P payments, and moves in food delivery serving as just a few of the many avenues the firm has pursued in the last few years. (To questionably good effect, Karen Webster noted recently).
iZettle, on the other hand, opted for a more narrow vision that goes very deep.
"We’re happy with the mPOS business. We never spent any time or money trying to convert the cardholder into a wallet user or anything else,” de Geer said. “We were only ever interested in merchant services."
Which is not to say that mPOS devices and payments processing was the only merchant service iZettle ever intended to offer; it was just what de Geer told Webster was the firm’s natural starting point. Last week, however, the firm announced its first big step past payments processing with the launch of iZettle Advance. The lending platform helps micro-merchants/SMBs who use iZettle to access capital as an advance on future card sales to boost their growth.
In a conversation with Webster shortly after the news was announced, de Geer explained that pursuing a means to get their merchants better access to cash flow grew organically from their relationship with their merchant partners.
"When we started asking merchants what they needed, it really came down to one thing: access to cash that they couldn’t get from traditional banks,” he said. “This is a complementary service to what we offer – and is about making sure that merchants have all the tools they need to compete."
A service, he noted, that European firms – like their American counterparts – are finding is increasingly hard to come by in a lending and regulatory market that does not favor loans to micro-firms. But these are the firms, de Geer notes, that iZettle has been serving for years in a compliant , risk-managed environment. And while extending credit does pose additional challenges, they are challenges that are already familiar to a firm that has built a fully compliant payments network around the world.
"One of the very benefits of being a new company is that we are not using old banking systems; we are at the forefront of technology,” de Geer told Webster, noting that it was a benefit that they could leverage for a wide variety of business products.
"[Lending to micro-merchants] is a totally underserved market and is everything from restaurants, to hair salons, to dry cleaners — any company that requires making an investment to grow. Small companies more than most experience uneven cash flow and they are much less able to make investments and have very few options to consult."
iZettle Advance is designed to streamline the financing process for users, who come to the platform essentially pre-assessed. After an evaluation process — which, de Geer noted, is based on a number of factors including revenue, time in business, credit scoring and a host of other factors — businesses that receive approval are advanced capital within a few days. Those funds are then deducted automatically from card payments iZettle processes. This means that “when sales vary, payback varies as well.” Advances can be extended to customers of the iZettle platform for as little as two months, subject to meeting other criteria.
The launch of the new credit product comes as the firm announced an additional $67.5 million (€60M) funding round, led by Intel Capital and Zouk Capital. The funding will be used to support the development/expansion of its new product, and enhancements to its existing platform.
“My ambitions and anticipation as always is to add more services on top of our current offering,” de Geer told Webster.
Though expanding its purview some, iZettle it seems remains as focused as always — though it’s broadened that focus to include more of the financial services toolbox available to merchants around the world — an expansion de Geer made clear the firm is committed to continuing going forward.
Will one of those markets be the U.S.? Only time will tell. De Geer has steered clear of the U.S. market given its EMV-led capabilities and the very crowded market of mag stripe mPOS players. But with its EMV, NFC and Apple Pay enabled capabilities – and the U.S. market’s appetite for same, well, the last time we talked, de Geer said in May that the company was “moving into a position where [they] could actually consider it.”
"We’d like to move into the U.S. – but there are so many players offering payments the question has always been, ‘How are we relevant?’” he said in a previous interview with PYMNTS. “How do you address a market that is already saturated by similar services?"
Guess we will have to wait and see what the next few months bring.