Credit card payments for carpenters

The mobile payments space is in desperate need of innovation. There are currently 20 million small businesses in Europe that only accept cash or invoices. Swedish start-up iZettle is trying to change this, discovers Jason Hesse.

iZettle provides a mini chip-card reader and an app that turns iPhones and iPads into mobile credit card terminals. The company launched its beta programme in the UK today, offering 3,000 mini chip-card readers to small businesses and the general public. The service is similar to US-based Square, although instead of using the magnetic strip, iZettle only works with chip-enabled cards.

We caught up with Jacob de Geer, founder and CEO of iZettle, who believes that the product should go some way to making it easier for small businesses to take card payments: “The UK card market is underserving smaller businesses and it’s having an impact on cash flow. iZettle is completely suited to SMEs; it’s easy to use.”

To process a transaction using iZettle, all business owners need to do is plug the chip-card reader into their iPhone or iPad, enter the amount to be charged and a short description of the item, and insert the buyer’s credit card. The reader scans the chip in the card and the customer signs on the device screen to confirm the purchase. The app then sends a receipt to the customer’s email address and iZettle deposits the funds in the merchant’s account by the next business day.

“I know what it’s like to start your own business – you need all the help you can get and iZettle is one of those small but important elements that can define the difference between failure and success,” says Charles Dunstone, founder of The Carphone Warehouse and an iZettle investor. “Taking payments is becoming increasingly difficult with people carrying less and less cash in their wallets. With iZettle, problem solved – you can focus on growing your business.”

It’s cheaper to use than traditional point-of-sale terminals, which businesses usually rent out for £25 per month in addition to paying transaction fees. While initially, in addition to a commission charge, iZettle charged a fixed €0.15 per transaction fee per sale, the company dropped it earlier this month. iZettle now only charges a 2.75 per cent commission on MasterCard and Diners Club card payments or 2.95 per cent on American Express payments.

iZettle is EMV (Europay, MasterCard and Visa) approved, and compliant with the Payment Card Industry Data Security Standard (PCI-DSS). There is no sensitive data stored on the either the mobile device or the iZettle reader, and all data traffic is encrypted.

The product is user friendly and well designed, but we do wonder whether the UK market is ready for iZettle in its current form. In particular, three points stand out:

First, chip and PIN. Britons have been brainwashed into thinking that chip and PIN is the safest and most reliable way of confirming a purchase. (The fact we even have a “chip and PIN day” says it all.) The UK is one of the few countries where chip and PIN is the de facto standard; most other European countries are comfortable with both signing for purchases and using chip and PIN.

We wonder whether UK customers who must sign for iZettle on an iPhone screen will be comfortable with doing so, or whether they will see it as a step back. Could you really imagine your mother paying her plumber by signing the bill on his iPhone?

Second, the product currently only accepts MasterCard, American Express and Diners Club so far. Visa has not approved iZettle, although the two companies are in discussions. “It is taking longer for Visa to approve us because, unlike Visa Inc in the US, Visa Europe is owned by all the various banks. So it takes longer for things to go through. But we are in talks with them, and hope to partner with them too,” explains de Geer.

This is quite a setback for iZettle. Exact data on market share is hard to come by, but in 2006, a report by the British Bankers Association estimated that Visa owned roughly 55 per cent of the UK credit card market. Isolating such a big part of the market could be a mistake. “We’re operating in a fast-moving market, we couldn’t wait forever to launch,” says de Geer.

Finally, the iZettle name and brand. iZettle is a play on words for “I settle”, but it may not suit the UK market, which could require a more obvious and serious name. Associating the brand with Apple also makes it sound more “gadgety” than it is, and we do have to ask: what will happen when the company branches out to other mobile operating systems, such as Android?

The product is already a success in the Nordics: more than 50,000 users are signed up to the service which, since the company began operating last August, has resulted in an increase in the number of point of sale card acceptance terminals in the Nordics by 10 per cent. “We’ve had a great response from our users in the Nordics market and are looking forward to getting feedback from small businesses and individuals in the UK who have previously been limited to cash, cheques or invoice as payment methods,” says de Geer.

iZettle has the same opportunity in Britain. This is only a soft beta launch, and de Geer says it will help gauge what works and what doesn’t work in the UK market: “We’re not pretending that we know everything about the market here. We look forward to receiving feedback from our British users, which will help us develop iZettle further.”