Key findings from the industry of mPOS (mobile point of sale).
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Despite the number of issues concerning Square’s monetization of the customer base and inflated capitalization, in the end its IPO proved successful. All shareholders earned a decent profit, and after a technical drawdown the stocks went up comparing to the initial offering price so that the skeptics were confounded.
One more conclusion after 2015: mPOS is not about “cash cows”, but it is very cheap customer acquisition channel and effective platform for cross-selling of SME-loans. mPOS-acquiring is turning into customer attraction channel, while the integrated POS management and customer relations systems are becoming the core business.
In 2015 Square opened doors to its followers in the segment – and in 2016 those getting ready for their IPO, and those negotiating with potential acquirers, that are trying to bring down the price. In Asia, there two main drivers of mPOS development: rising number of bank cards (coming along with the growth of the middle class and its purchasing power) and the boom of e-Commerce (the giants are trying to replace the prevailing cash-on-delivery pattern by card-on-delivery).
For much of mPOS’s history, industry’s participants have been trying to distance itself from being labeled a payments-processing companies. Jack Dorsey, the company’s cofounder and CEO, has said countless times that he doesn’t consider Square a payments company—that he and his team “always knew [payments were] not our core business . . . We knew the real business was around the data.” Board member Vinod Khosla told: “We’ve always looked at the company as this larger thing, and if other people think we’re doing payments, great, that’s a red herring”.
The problem is, at present, business of Square-like startups is almost entirely dependent on payments revenue. According to its S-1, Square generates around 95% of its revenue from payments and point-of-sale services. There are cogent reasons why Dorsey didn’t want Square branded a mere payments processor. Many industry experts argue that payments are a “commodity game,” as Intuit CEO Brad Smith has said. Though Square collects fees for every transaction it facilitates, that business is subject to fluctuating margins, government regulation, negotiations with larger-scale merchants (like Starbucks), and Square’s evolving relationships with financial intermediaries.
Square has a ton of untapped potential going forward, or the pessimistic view is that it’s been incapable of tapping into this potential to any substantial degree over the past six years.
Square managed to build a sleek, beloved brand despite the fact that the company mainly handles payment processing. It speaks to Dorsey’s gifts that he was able to gin up a strong, consumer-facing reputation for Square even though the company would make money from a more enterprise-centric business model. To him, Square isn’t about financial intermediaries and EMV-compliant hardware; it was about reinventing commerce and empowering small businesses. “Proud of what Square stands for: inclusion and empowerment,” Dorsey tweeted. This message, along with the company’s glossy design, has given Square a brand that customers love, something traditional payment solutions companies such as NCR and Verifone could never attain.
According to Square’s S-1, more than 2 million sellers account for 97% of its gross payment volume; if Square could upsell these merchants on higher-margin services, such as software to handle analytics or invoices, it could establish a far more lucrative and sustainable business compared to its payments processing.
Many of these new products fall under Square’s “software and data” division. This unit is crucial to Square’s future. Frankly, it’s all Square has been talking about since 2014, if not earlier. The company spent the majority of its time pitching on the idea that Square wants to be “the central operating system of your business,” as engineering head Gokul Rajaram phrased it. Square hardware lead Jesse Dorogusker told the company believes its sellers need assistance with everything from “delivering arugula to keeping the lights on to upgrading their Comcast Internet.”
Square Wallet, a digital wallet Dorsey pitched for years, Square Order, which allowed consumers to order ahead at local restaurants via an app, cash-advance program Square Capital and peer-to-peer network Square Cash, there are a slew of other services—Invoices, Open Tickets, Dashboard, Appointments, the list goes on—that are equally as promising, and they will become huge revenue generators. Khosla told in 2014 that the company wouldn’t do payroll—ZenPayroll already does that beautifully, he said, and Square would partner with them—but by June of 2015 year, the company added a payroll product to its “ever-expanding offerings”. Square makes a lot of beautiful and well-crafted products and it’s still figuring out the right mix of which ones its customers want and that will make the company a lot of money.
There’s no sin in that approach so long as the company can afford to do so. No need to pretend otherwise.
In July 2015, Square communications head Aaron Zamost wrote a widely shared blog post on Medium about how the narratives swirling around Silicon Valley startups follow a distinct and predictable pattern. Zamost essentially posits that no matter the reality of a company’s business or performance, the ups and downs of its perception in the press, often referred to as the hype cycle, are out of that company’s hands, and rather track along a predetermined arc, forced on by the tech media “like clockwork.” Zamost concludes by offering some helpful advice.
He recommends that a company dealing with narrative woes is better off focusing on its customers, remaining humble and not forcing an alternative story arc, and refraining from getting angry or looking defensive. While Zamost warns that “a negative story has nothing to do with you,” he also acknowledges, backwardly, a few paragraphs later that “your company isn’t perfect. You’ve made mistakes. It’s OK to own up to them…if your business is a good one and you know how to manage the clock, your story will take care of itself.”
Chip&Pin came to US (at least!)
Used in Europe since the 1990s, credit and debit cards with embedded chips are finally available in the U.S. after years of delays, and retailers are spending about $30 billion to install the compatible equipment, according to the National Retail Federation. The technology makes it more difficult for criminals to clone stolen cards compared with those with only magnetic stripes. That could help limit the fallout from retail hacks.
The holiday shopping season on November 2015 is shifting into top gear at a moment when the U.S. payments industry is in an unprecedented state of flux because of new technology. The new cards contain a computer chip instead of relying on the traditional magnetic strip on the back of the plastic. The chip cards, which are widely already used around the world, make it more difficult for crooks to create counterfeit cards if they hack into a merchant’s payment system.
For consumers, it can all be pretty confusing. Millions of shoppers just getting accustomed to the new generation of chip-enabled cards that issuers began sending out earlier in 2015. But not all merchants have upgraded their terminals to accept the new technology, which requires consumers to dip their cards into a slot at the bottom of the terminal. Target customers who use the new cards incorrectly are reprimanded with a buzzing noise.
The new cards are also creating minor delays at checkouts, potentially eating into the profits of merchants who need to get customers through the line as efficiently as possible. “We knew it was going to take a couple seconds more at checkout and we’re seeing that,” Target chief financial officer Cathy Smith said last week. Merchants who don’t make the transition to chip cards can also find themselves on the hook for certain fraudulent transactions that used to be absorbed by the banks.
There hasn’t been this much upheaval in the checkout line since manual credit-card authorizations were phased out and replaced by computers in the 1980s. Magnifying the current confusion is that while the industry transitions to chip cards, merchants are also introducing a whole range of new technologies allowing consumers to pay using digital wallets, smartphones and other devices. Some, such as Urban Outfitters Inc. and Whole Foods Market Inc. let consumers pay by tapping their Apple phones to the payment terminal. But don’t try to use Apple Pay at Wal-Mart Stores Inc., which isn’t equipped to handle the technology. If you have a Samsung phone, however, you can use the device at nearly any payment terminal.
Although banks have issued hundreds of millions of chip cards so far, the cards represented just 30% of the plastic in circulation from the eight largest financial institutions. 36% didn’t even know if they had a chip card. Nearly half of chip-card users were confused the first time they used it, and more than 60% thought the cashier didn’t know much about the process.
And while some large merchants, such as Target and Wal-Mart, are processing chip transactions, many other merchants—from Bed Bath & Beyond Inc. to large regional grocery stores—don’t yet have the new technology. A representative for Bed Bath & Beyond said the retailer will start processing chip-card transactions during the first half of 2016.
Manning Field ran into a stumped cashier the first time he tried to pay for lunch with his Apple Watch in the corporate cafeteria of J.P. Morgan Chase & Co.’s credit-card headquarters in Wilmington, Del. “She said, ‘Hey, I don’t know how to do that. Can you just use your card?’ ” recalled Mr. Field, who is an executive director in marketing in the bank’s credit-card division. He now pays with the watch frequently in the cafeteria, although “every now and then, you go up there and get a bagel in the morning and you get the eye roll that’s like ‘Why can’t you just pay like everybody else?’ ”
Cinnabon plans to install terminals capable of reading chips in more than 80 of its 250 mall-based bakeries by early of 2016, according to President Joe Guith. The main goal is to upgrade old point-of-sale equipment to new Revel gear and add new features, he said. Risks of fraud at the chain, whose average check is $6, is minimal, so Cinnabon has been in no rush to implement the new technology during the holidays of 2015, he said.
To speed up checkout times, department-store chain Macy’s added salespeople equipped with hand-held devices to check out customers from anywhere in the store, a strategy known as line busting. But even with months of preparation by merchants, checkout time for people using chip cards could be a third longer than for those swiping the old magnetic stripe, said Richard Crone, chief executive officer of Crone Consulting LLC, whose associates monitored lines around the country.
Square’s IPO came in hot, bouncing more than 40 percent in its first day of trading. Priced conservatively, the offering did what all IPOs must do to set a positive narrative: rise. In the ensuing days of trading, Square has slipped. The pattern: Price, pop, and then decline is now a familiar dance. The company does exist, however, inside of a cadre of companies that have followed a similar pattern.
The data speaks for itself. For example, Etsy, Box, GoPro, Castlight Health, Alibaba, Apigee… It is reasonable to argue, however, that the moderate IPO pace we have seen in 2015 is not entirely surprising given the performance of many offerings. Tie that into the rising trend of kneecapped private valuations and you almost have a trend.
It’s still early days for Square and it’s tough to know what will happen with the stock price or the company’s value. Square probably low-balled the IPO stock price to focus on a larger pop and create positive investor sentiment.
What sort of omen is this for Silicon Valley? Who knows, but as we see here, a pop is not a lock.
By the way, since its bouncy debut, Square’s stock has remained relatively stable. This can be attributed to many factors, but the underlying predictability of its payments processing business is a big pillar of that. Before Square was public, it was unable (or unwilling) to disclose the relatively smooth arcs that transcribe its growth potential.
That potential, of course, is still potential — the company is not yet profitable — but it does allow people to move on to other interesting questions. One of those is how Square, originally positioned as the champion of the independent seller, will allow its merchants to scale up in size and complexity without having to move off of Square and onto a traditional payments processor. This question, more than most, is the existential dilemma that Square will have to solve if it’s going to scale along with its user base while avoiding strategically-beneficial-but-ultimately-costly tie-ups like its Starbucks deal.
One component of Square’s efforts to do just that, to keep sellers in the fold as they grow, is its App Marketplace. Launched a year ago, it’s a catalog of apps and solutions that integrate with Square. Tasks like accounting, inventory, e-commerce and invoicing are represented by companies like Bigcommerce, Shopventory, Weebly and Xero. In December 2015 Square announced that the App Marketplace has seen 100,000 sellers connected, a number that has doubled since January 2014.
Square says that the average seller connected to the App Marketplace is 3x larger than the average Square seller based on volume of transactions. Whether that’s a chicken or an egg, it speaks to the effect that Square wants to have on its seller base. Simply put: if a seller starts a business on Square, there is no reason it should ever need to switch off of Square.
When you expand from one retail location to 10 in five years, you need much more nuanced inventory and accounting systems. A simple Square report isn’t going to be enough. By closely vetting the apps and integrations that get put on the App Marketplace, Square is able to ensure that the experiences are good and that the needs of its sellers are being met. Person-to-person feedback and seller data are used to determine the best integrations to pursue.
I in the US accounting is the biggest category for growing businesses. Both QuickBooks and Bigcommerce also recently shipped updates for their Square integration — leading indicators that the companies are finding it worthwhile to support Square.
There is also the matter of localized tools and individual needs. One of App Marketplace integrations — a digital restaurant kitchen display system called Fresh KDS that allows a restaurant to see orders in real-time. Sign up for $10 bucks, install it on a tablet and connect it to your Square account and any order made via register automatically shoot to the kitchen.
Shortly after going public, Square announced in November 2015 that its new card reader is now available to pre-order on its website for $49. The new reader will ship in early 2016. Compared to the good old Square reader that you put in your headphone jack, this one packs a few new features.
Second, the new bigger design comes with a new slot for chip cards in case you can’t pay with your phone.
Finally, it’s a wireless reader that connects to your phone or tablet using Bluetooth. It has a small built-in battery and you can recharge it with a standard microUSB port.
As chip cards are the global standard when it comes to credit card technology, Square could take advantage of this reader for international expansion. Square is available in the U.S., Canada and Japan right now. With this new reader, it becomes much easier to convince a British retailer to switch to Square for example. There are already many European competitors, such as iZettle, Payleven and SumUp. Let’s hope that Square’s international expansion window won’t close too quickly.
Square disclosed that it will discontinue its payment processing agreement with Starbucks. The partnership, which formed in 2012, began to unravel last year when Starbucks stopped accepting payments from mobile devices running Square Order. But until August 2015, Square continued to process all transactions paid with credit and debit cards. As of October 1, Square’s exclusivity provision with Starbucks was eliminated, and Starbucks began to pursue another payment processor.
Square said it expected Starbucks to eliminate their partnership altogether before it sets to expire next year, and Square says it will not renew the partnership. The terms were unprofitable for Square. Square lost almost $15 million in the first six months of 2015 from the Starbucks deal. Excluding the first six months of the three-year Starbucks partnership, Square brought in about 19 percent less than it spent processing payments for Starbucks.
In 2012 Square formed a partnership with the coffee retailer and began processing all payments across their 7,000 locations in exchange for Starbucks investing $25 million in their Series D round. The deal was intended to raise awareness of Square’s brand recognition among Starbucks customers.
In November 2015 Square CEO Jack Dorsey hinted that Square may reintroduce its Square Wallet product, which the company pulled last year after it failed to take off. Dorsey spoke glowingly about the now-defunct Square Wallet app that let people pay for stuff in stores by saying their name at the register. And he sounded like he still wants the company to bring it back from the dead in some form.
“That’s definitely an experience you’ll see in the future,” he said. “I still want [the Square Wallet] experience, personally,” he said. “I think Square Cash shows a path.” “I believe that the Square Wallet experience was the peak,” he added, after first talking up new tap-and-pay methods like Apple Pay.
Square Wallet was Dorsey’s dream to transform the way shoppers paid for stuff in stores, but it never took off because it wasn’t accepted everywhere and there wasn’t a good enough reason to use it instead of more traditional payment methods. The company spent several years and heavy resources trying to make it work, in large part because it was Dorsey’s baby.
Square eventually killed it in 2014 and pivoted it into an order-ahead app, called Square Order, which it discontinued as well just 10 months later.
Dorsey said that an existing product, Square Cash, could be a path toward a Square Wallet reincarnation of sorts. The Cash app started out by letting people transfer money to friends, through a debit card hookup. But Square also launched Square Cash for Business in March 2015 that allows business owners to accept debit card payments. A new version of the app, released earlier this month, makes it possible for businesses to now accept credit card payments through Square Cash, too. The Square Cash payment method for businesses seemed targeted toward business owners without a physical location — such as wedding photographers or music instructors — more than retail shop owners. But Dorsey’s comments today imply that the scope of businesses targeted by Square Cash could change.
According to one source, Square Capital is now one of the payments company’s fastest growing businesses, besides its core product which allows anyone to accept credit card payments through a reader that attaches to a phone or tablet. Square is now advancing $1 million per day to businesses, and has disbursed a total of $225 million in cash advances to more than 20,000 small businesses since the public launch of Square Capital in May of 2014 (Square says it has done more than 40,000 advances in total) – till August 2015. That’s up from $100 million earlier this year. At the current run rate, Square is on track to advance at least $360 million in 2015 alone.
Square Capital identifies and reaches out to businesses it deems worthy (not the other way around, as in the case of bank loans), and uses its proprietary algorithms to determine how much to loan and what the fee structure should look like, using data such as the company’s sales and payments data, new and old purchasers, daily number of sales tickets, and cash flow, among other information. Merchants receive a lump-sum payment in exchange for an agreed-upon percentage of future sales, as well as a fee.
While cash advances can be a quick way to get extra cash, this particular financial product can also be expensive. Fees tend to be higher because the lender, Square Capital in this case, is taking on additional risk. Additionally, cash advances are not regulated as heavily as traditional loans. Square makes money by charging a fee on top of the advance. After Square lends the money, it recoups the money as part of a merchant’s future sales using Square point of sale app, Register.
For example, Square may offer a business a $10,000 advance plus another $1,000 in fees, or 10% of the advance. The business will then have to pay back $11,000 and this money will automatically (and gradually) come out of future credit and debit card daily sales using Square over a fixed time, at a percentage of daily or weekly sales. Square says it will take more money out of a merchant’s sales if business is doing well, and will take less if business is suffering.
Square is drawing the money to loan from its balance sheet, as well as from institutional investors, including Chicago-based Victory Park Capital and Colchis Capital, who have agreed to issue money to Square Capital on a monthly basis. Square declined to release the financials on the margins the company is making from these loan. But a source familiar with the matter says margins are higher than expected, especially given that there is little to no customer acquisition cost since all loans are given to existing customers.
Square Capital has been growing fast, thanks in part to the fact that small businesses have been underserved by traditional banks, and more of these businesses are turning to alternative financial institutions to find capital. But other technology companies are reaping the benefits of this trend as well.
One of Square’s rival in the payments world, PayPal, also launched a lending arm, and recently revealed that it haslent $500 million to 40,000 businesses in the past year and a half. Amazon also offers its merchants working capital advances. And of course, if the business becomes large enough, it could make sense for Square to become a certified lender, more similar to the models of On Deck or Lending Club. For comparison, Lending Club has now swelled to over $13 billion in loans with operating revenue of $115.1 million last quarter.
“Square Capital demonstrates how our services can rapidly reach significant scale through a combination of strong demand and our direct, ongoing interactions with our sellers,” the company writes in its S1-A.
Capital doesn’t contribute a “significant amount of revenue” to Square’s overall business yet, but the company says in the S1-A that it expects that it “will contribute a larger portion of our total revenue over time.”
The company announced the hire of Yahoo veteran Jackie Reses to lead Square Capital. Her departure deals a blow to the Web portal as it prepares to spin off its $27 billion stake in Alibaba Group Holding Ltd. “Jackie’s understanding of the financial-services industry and her background in tech and investing make her the perfect fit to lead Square Capital,” Dorsey said in a statement. The unit recently hired Henry Domenici, formerly of Morgan Stanley, to lead financing and Ted Kosev, previously at Amazon.com Inc., to lead product management and operations.
In April of 2015, Square launched Square Marketing, a service that lets businesses send digital offers such as discounts to their customers. And in August, it started to help businesses schedule appointments. These new services get plenty of attention when they’re announced—and less so from then on. That’s made it tough to tell how much of an impact they’ve had once they’re rolling. But the company recently shared some data, aggregated from all businesses that use Square Marketing. It shows ways in which the service—which has a basic free tier, but costs $15 per month per 500 contacts for full functionality—is paying back the merchants that use it.
“When we were looking back over some of the activity since it launched, we saw that in food-related categories, for every dollar that was spent on a promotion, [merchants] got about $20 back in terms of sales,” says Kevin Burke, the former Visa CMO who heads up marketing for Square.
“That’s pretty compelling to our sellers when they see this easy-to-use tool driving such tangible results.” “We also saw, just on average, that for buyers who were redeeming an offer, they tended to spend about 25% more on that transaction than on an average transaction. Again, a really nice lift.”
“What I’ve found when I talk to sellers is that they may not be classically trained as marketers, but they really understand the importance of acquiring new customers, or getting existing customers to come back for more. That’s very much how this product hits the sweet spot for them, in terms of helping them do that.”
Square Marketing auto-sorts a business’s customers into buckets including regulars, casual, and lapsed. It says that email recipients are almost twice as likely to open email offers targeted this way than ones which a business has selected manually, and are more than 10 times more likely to redeem them.
Since Square introduced Square Marketing in April, it’s beefed up the features in some respects, most notably by adding Facebook integration. Besides pushing offers out to existing customers via email, a business can publish them to one or more Facebook pages, where they become shareable by visitors to those pages, giving them the potential to reach new customers as well as existing ones.
But Square Marketing still isn’t trying to be a full-strength alternative to an email-marketing powerhouse like MailChimp or Constant Contact. Rather than offering limitless flexibility, Square Marketing provides very simple templates for offers—such as a Fourth of July special—that merchants can customize and fill in with their own specifics, such as a discount on a particular product. It then ties them into the Square Register point-of-sale system, so they’re trackable. The idea is to make things easy for small businesspeople who want to give incentives to customers to come back—and who don’t have a whole lot of time to devote to marketing.
Also Square has prototyped a Square credit card. The plastic card is all black, and save for the card holder’s name emblazoned on the face, features no logos—not even Square’s. Over the 2015 year, multiple sources indicate Square employees have been carrying the card—seen here below, partially blurred to protect the card holder’s identity—around in their wallets.
However, despite buzz about the potential of a Square credit card, other company sources indicate the project was recently killed. As Square seeks to unearth new sources of revenue beyond its core business of payments processing, some insiders expected the Square credit card would be a promising addition to the mix, potentially opening the company up to a swath of lucrative consumer loyalty and rewards services. But after pressing the company multiple times about the project, Square finally confirmed that it’s not launching a credit card.
How would Square differentiate from other credit cards in the market? Anyone who has used a Citibank or other credit card knows what a hassle it is not only to keep track of purchases, but to keep up with statements and rewards. Square’s long-term aim was to simplify and clean this process up, with payments tracked through simple digital receipts, notifications, and so forth.
What’s more, thanks to what the company knew from its data and risk team, Square felt that traditional metrics (such as FICO scores) were outmoded; if Square could tie a card directly to a bank account, it could essentially create a bank card with credit card-like benefits, but that would act as a debit card, to lower risk and liability. And unlike Square Wallet, Square’s plastic card would be accepted everywhere that takes debit cards, increasing the likelihood of consumer adoption. Bill Gajda, Visa’s global head of strategic partnerships, about the Square credit card, tells: “If Square decided to do that, it would need to be backed up by a bank, so they would have to issue what’s called a private-label card or co-branded card, just like United Airlines and Marriott Hotels do,” he says.
In July 2015 Square introduced the Square Dashboard app for the iPhone. The app provides real-time analytics on the performance of all your business locations, so you can make “in the moment” decisions about how to handle your business – that might mean staying open an extra hour, promoting an underselling item, or letting employees go home early on a quiet day.
Besides real-time analytics, you can check daily performance summaries and comparisons to your business’ sales the previous. It’ll also provide insight about your most popular items overtime, and you can zone in on either one location or view sales at all your businesses at once. So business owners certainly seem to appreciate the mobile functionality; it’ll certainly be useful to check if you’re busy running errands and not sitting by a computer.
In June 2015 the company has launched Square Payroll, software for businesses to pay and track taxes and other costs for both hourly and salaried employees. The product, initially available only in California, is priced at $20 per month, with $5 per employee on top of that. Square Payroll is entering a pretty crowded market, competing against the likes of Intuit’s Quick Books, ADP, Paychex and others.
A few, like Wave Accounting, offer some but not all the same features: Wave, for example, doesn’t handle tax payments or tax filings — they estimated tax liabilities. Square Payroll includes timecards, taxes, and the ability to track and pay both salaried and hourly workers, and its price is all-in. It’s a smart idea and there are a couple of clear advantages for Square to build and offer a payroll product.
For current customers, it becomes one more way for Square to tie them to its service, and to make more margin out of those users (important since payments alone are a very thin-margin service when you consider the other parties in the chain that also take cuts). It’s also a way of potentially snagging new customers for the startup, which is currently one of the leaders in its category but competing strongly against the likes of PayPal and others.
Since May 2015 Square Cash now lets you send a direct payment of a specific amount to a person or organization using a ‘$Cashtag’. A ‘$Cashtag’ is Square’s payment system for accepting simple payments over the Web via a customized URL.
Before, you could just direct someone to your page, but now you can request a specific amount in the URL. These can be used for businesses, charity organizations or because you need to pay your friend back for that movie ticket. For example, the URL cash.me/$wikipedia/10 automatically creates a $10 donation to the Wikimedia Foundation. If you want to create your own automatic donation, just swap your own $Cashtag in place of Wikipediaand set a dollar amount. Making a payment just requires entering your card number, leaving an (optional) note and hitting the donate button.
In April the mobile register launched Open Tickets, which allows customers to keep an open tab. The product is said to be rolling out this week. “‘Keep my tab open.’ Music to a bartender’s ears. More often than not, it means more sales — and bigger tips. But managing tabs can be a pain”. The new feature is Square’s latest love note to the food and beverage industry. Open Tickets is a small product update, but it’s a noteworthy play for a market it covets. The company has always had a keen eye on restaurants, cafes, and bars. Some of the company’s early success came from wooing coffee shop clients.
When Square bought food delivery startup Caviar in summer 2014, it seemed like a strange acquisition for the payments company. But over time it’s become clear that Square is committed to competing in the increasingly crowded food-delivery segment. Thanks to its acquisition of San Francisco-based food delivery startup Fastbite, it’s adding a whole new option to Caviar that will reduce the cost of meals and time customers spend waiting for them to be delivered.
By doing so, it will compete more directly with local food delivery services like Sprig and Spoonrocket. When users open the Caviar app, they’ll see “Fastbite” alongside other restaurants listed near their location. The service will offer three or four menu options daily, which will be priced as low as $8 — including delivery — but never cost more than $15 per meal.
To get those meals the company is partnering with different restaurants to create prepared foods that can be delivered quickly to local customers. According to Fastbite co-founder (and now-Square/Caviar employee) Avlok Kohli, the team used Caviar data to determine the best restaurants for a variety of different cuisines in its local delivery area. Caviar differentiates itself from other food-ordering apps like Seamless by allowing users to have food delivered from restaurants that don’t have a delivery service. So, Caviar is both the ordering software and a delivery infrastructure provider.
In August 2015 iZettle, the Swedish payments processing start-up, has raised €60m in a new funding round, in the latest move by investors to back a European financial technology business. The company said its latest funding round was led by Intel Capital, the venture arm of the US chipmaker, and Zouk Capital, a London-based private equity fund. According to a person familiar with the matter, the investment values the company at more than $500m. The company has previously raised more than $100m from backers including Santander, American Express and MasterCard.
The funding makes iZettle one of the best backed fintech companies on the continent. In December 2014, Adyen, a Dutch payments processor, raised $250m in a funding round that valued the company at $1.5bn. In April 2015 Funding Circle, a British peer-to-peer lender, raised $150m in a round that valued the group at about $1bn. iZettle has not revealed updated customer numbers, but last year de Geer noted “a couple of hundred thousand” users. Today, there are still 20 million small businesses in Europe that do not take card payments.
The company, founded in 2010, said the investment would allow it to continue its expansion plans in markets in Europe and Asia. It will also use the funds to make its first foray beyond card payments. It intends to roll out “iZettle Advance”, a financial product that provides businesses with small cash advances that are paid back automatically as a fraction of future card sales.
There’s no doubt iAdvance offers something new to European small businesses – and demand is likely to be strong. In the US, payments business Square launched a similar offer last year and the company says take-up has been rapid. The company is pitching the loans as a solution to businesses’ cashflow problems, offering finance to help small firms expand their stock, for example. It is also tapping into the increasing willingness of small businesses to look beyond traditional bank lenders for finance, with take-up of alternative funding solutions such as peer-to-peer loans and crowdfunding now soaring. “We have aimed to build a financing service that’s completely tailored to the needs of small businesses,” says Carl-Richard Häggman, iZettle’s Chief Risk Officer. “The service allows for small businesses to make the necessary investments in their operations, on their own terms and with minimal administration.”
In February 2015, the company — which processed at that moment about $2.3 billion in transactions each year — launched a new card reader that it will offer to merchants free of charge. The Lite reader, as it is called, will sit alongside iZettle’s existing piece of hardware that retails for around $75, depending on the market. The Lite is designed with a very notable difference in mind. Unlike the paid product, the new reader cut a very notable corner to keep its cost down: the device is no longer wireless, plugging into an iPhone, iPad or Android device by way of the audio socket — essentially standing in for the free dongles that iZettle used to give out to merchants when it first opened for business.
The first markets for the Lite are U.K., Sweden, Norway, Denmark, Finland, Spain, Germany and the Netherlands. No news yet on when iZettle will roll it out to other places where it is building its business — namely Latin America.
“What we’ve seen with the curreent device is that it’s one of the fastest in the market, but it connects over Bluetooth so it is more complex than our initial product in the market,” he says, referring to the original plug-and-play dongle that iZettle developed.
The Lite reader is meant to replace this he says. “So with that in mind we’ve spoken with merchants who have up to 10 transactions per day. We found that the speed with the current terminal is not important,” he adds. It will also give iZettle a way to upsell those users when and if their volumes to increase to their paid, faster terminal.
In May 2016, the company, whose card-deck-sized devices are used by car-repair shops and street-market vendors, presented new chip&PIN reader for contactless payment cards as well as mobile applications such as Apple Pay and Google Wallet. It started selling in the U.K. on June 1 for 79 pounds ($124) and will roll out to other markets soon. Credit and debit cards that can be used by tapping the reader are gaining users, and mobile apps are set to further boost the popularity of contactless paying. Last year, contactless payments more then tripled to 319 million transactions in the U.K., IZettle said.
“This is the first true step towards a true mobile payments environment, when you can start to leave your wallet at home.”
UK start-ups were being offered the opportunity to win free primetime TV advertising on channels such as Sky Sports and Sky News, with the launch of iZettle’s ’15 Seconds of Fame’ competition . The competition, which intends to help small businesses “get their name out there”, selected seven winners (six chosen by a jury, and another by the public) to broadcast their ad on national television across October and November 2015.
When Apple launched its long-awaited mobile wallet in October 2014, some European-based payments companies took the announcement as a sure sign Near Field Communication would become the dominant method for proximity mobile payments in the U.S. European companies at the time described the U.S. market as fertile ground for expansion across the pond as NFC-based mobile wallets, Bluetooth Low Energy beacons, and the EMV migration converged at once. Fast forward 12 months and a big piece of that triple threat has arrived in the U.S. with the EMV liability shift deadline now behind us.
With that in mind, SumUp announced its entry into an already crowded U.S. market to provide small-and-medium-sized businesses with an EMV and contactless compatible proprietary device that works with smartphones and tablets running either the Android or iOS mobile operating system.
SumUp will market its product directly to U.S. merchants.
The company will also seek to entice its current European partners that have a presence in the U.S. to consider the device for stateside operations. Merchants can preorder the device, which ships in January 2016, on SumUp’s website for $99. The company offers merchants a per-transaction fee of 2.75 percent and there are no long-term contracts. SumUp’s card payment terminals, software, and smartphone apps are the world’s first EMV certified end-to-end mPOS payments system, according to the company.
It will be releasing a new contactless payment terminal, designed for the US market, which is compatible with EMV payments, Apple Pay, Android Pay, and swipe payments.
With their eye on Europe’s largest market by credit/debit card usage per capita, SumUp has announced that they are adding support for Sweden. The country becomes the first in the Scandinavian market for SumUp. The entrance into Scandanavia occurs as the firm has been active in raising funds to assist its global expansion which currently includes support to 14 countries including Brazil and Germany.
According to SumUp, as part of their entrance into Sweden, the firm will be announcing strategic partnerships with who they call “big players in Sweden” to spur on uptake of their product. The partnerships will be similar to existing ones they have in Europe which include Unicredit, UBS, Tupperware and mytaxi.
Daniel Klein, CEO of SumUp, commented on the launch that “Swedes pay more frequently by card than any other European nation; this makes Sweden a very interesting market for us.”
After raising €10 million in June 2015 (by Swiss venture capital firm Venture Incubator AG), mobile technology firm, SumUp, announced that they have closed another €10 million round in August. Raising another €10 million, the funding includes investments from BBVA Ventures and Groupon who had previously been counted among the firm’s investors. According to SumUp, the funds will be used to help them expand to two new countries, reaching a total of 15 and covering three continents. In addition, SumUp plans to use the cash to fund their roll-out and creation of new contactless payment technologies and services. This takes SumUp’s funding so far to a total of €50 million.
Commenting on their investment, Jay Reinemann, Executive Director, BBVA Ventures, stated, “We’re pleased to offer further support to SumUp, who are shaking up mobile payments and creating opportunities for both merchants and customers. They fit the profile of businesses BBVA Ventures wants to invest in and learn from – those disrupting the mainstream for the benefit of the consumer.”
In a similar vein to Square, SumUp will be focusing on using this investment to upgrade its hardware. Unlike companies like iZettle, Klein explains that SumUp has built out its business to be as vertically integrated as possible. That includes designing its own hardware rather than partnering with outside firms. The investment it’s made in its own hardware, in fact, is one of the reasons SumUp’s valuation has climbed.
Without the need for subsidies on the hardware, the returns are better.
“We decrease the price of the unit by ten times by doing this,” he says of the terminals, which sell for €79 or £59. “We’ve reached a competitive point in this respect for us to be able to produce terminals at a cost that is lower when we sell it. We are already making a profit on our hardware and continue to do so.”
“At the end of May we had over 300,000 merchants using our platform,” Klein says.
He is not disclosing average transaction size or wider revenue figures at this point except to say that sales have doubled in the last six months.
And in a game of scale, where typical 2.75 percent cuts on transactions means you need to do a lot to get a decent return and make a profit, the company is actually doing well, and Klein says the company is “on track” to be profitable by next year. Once again, this is partly down to the company’s business model, where SumUp makes a healthy margin on that point of sale hardware.
In December 2015 SME mobile payment system provider Payleven announced the release of a new version of its mobile iOS app, including an update with Apple Watch and Force Touch support. With the new version of the Payleven app, business owners now have access to their accounts with a glimpse on their wrist. Payleven also takes advantage of Apple’s Force Touch by allowing shorter paths to the main app functionality.
The market for mobile point of service (mPOS) hardware continues to be an active market in Europe. Helping the sector is strong growth of the issuance of contactless payment bank cards and mobile wallets which require merchants to upgrade the POS terminals to handle these forms of payments. In addition, unlike wired POS terminals which require an internet connection, mobile versions provide merchants with more flexibility in the placement of the hardware as well as making it easier to scale up purchase points during busy periods. Furthering its mPOS plans in Europe, payleven announced the launch of payleven plus, its mobile NFC capable chip and pin reader with Apple Pay support.
The product is being made available to merchants in the UK, Netherlands and France, with more countries expected to be added in the near future. According to payleven, demand for NFC-based card readers is growing with the increase of contactless cards in circulation among consumers. According to its data, within the UK there are 58 million bank cards that are equipped to handle contactless payments.
Konstantin Wolff, Managing Director and Co-Founder of payleven, described that wired terminals can take 6-8 weeks to complete the onboarding process while it’s only a few days with its digital onboarding. He added that costs are also lower with an mPOS as “traditional card terminals come with cumbersome long-term fees.”
In terms of its own solution, Wolff explained that its mobile readers include additional software such as tracking sales in real-time and sending receipts by email to customers. Overall, as competition among mPOS providers is increasing, payleven believes that these added features and simplicity of the system distinguish its product as Wolff stated, “We simplify the daily business of our clients and want to provide them with a product that ultimately helps to increase revenues.”
German mPOS vendor payleven has reached a European distribution deal with American Express to offer a free Chip and PIN card reader and credit card package for small businesses. The agreement, believed to be the first between an mPOS provider and card issuing company, will see the payleven card reader bundled with an American Express Business Gold Card.
Konstantin Wolff says: “With the partnership, entrepreneurs are perfectly equipped for their everyday business. The business bundle contains technology to securely accept card payments, as well as a flexible credit card that is specifically tailored to their needs.”
The same product payleven launched in partnership with Visa. The solution allows merchants in Brazil – especially sole traders – to receive the money transacted via the payleven Chip & PIN card reader without requiring a separate bank account. The money will be transferred directly to their prepaid credit card.
With the new product, payleven focuses on a market that is currently not reached by mPOS solution providers since, until now, only business owners with a bank account were able to accept card payments. The prepaid credit card will be issued under the name of the merchant and delivered with the Chip & PIN card reader. The owner may use it to make purchases and withdraw money at a Visa Plus ATM.
Additionally, all purchases made with the prepaid credit card appear in their payleven account: so they can keep track of their business activity. According to a research by Data Popular Institute, in 2013, 39.5% of Brazilians aged 18 or older – which corresponds to approximately 55 million of Brazil’s population – do not have a bank account. Therefore, payleven and Visa aim to provide SME merchants an opportunity to access card payments without signing up for a separate bank account.
At the beginning of 2015 payleven announced that it is now available in Ireland, its 11th market. As a gift for all Irish business owners, payleven offered an exclusive introductory price of 64 euros for the card reader. “It is our aim to deliver easy-to-use and smart technology solutions that help our customers to enhance their business,” Konstantin Wolff said in a statement. “Ireland has a huge market potential with a large number of businesses that still don’t accept card payments. With a smartphone penetration of over 60 percent and more than 6 million debit and credit cards in circulation, we see a strong need for our affordable solution.” Hailo, a taxi-hailing app, has offered its drivers payleven’s chip-and-PIN card reader in Ireland since January 2015. More than 500 taxi drivers are currently using the device in the United Kingdom.
PAYPAL HERE (USA)
In September 2015 PayPal Here announced the rollout of a new chip-card reading dongle in the U.S. that will also accept contactless mobile payments, including Android Pay and Apple Pay. The new reader will be available in the U.S., as well as the U.K. and Australia, where PayPal has previously launched chip-card reading dongles.
Companies like PayPal, Square, Clover, and Poynt are taking advantage of the liability shift to get merchants to switch out their legacy systems for one of their upgraded transaction terminals.
When the reader arrives, it will cost $149. Merchants who process low volumes (less than $3,000 in 3 months) can get a $100 rebate. Comparable card readers cost anywhere between $200-$350, making PayPal’s reader competitively priced. Still the reader, aimed at small businesses, is not priced as low as Square’s chip reader, which costs between $29 and $39.
The reader supports not only EMV, but also magnetic stripe cards and NFC, including Apple Pay, Android Pay, Samsung Pay, and more. As PayPal VP and GM Brad Brodigan explains, consumers today expect to “pay anywhere, anytime and any way they please,” which is why the company needed to enter the game with a multi-functional card reader. At that time, merchants who won’t accept chip cards will become liable for point-of-sale fraud when customers use their chip cards – a strong incentive to encourage business owners to upgrade their hardware. That’s where the PayPal Here reader comes in. Customers can also pay via cash, check, invoice or PayPal, of course, which makes the reader highly flexible in terms of the types of payments it can support.
Bengaluru-based Ezetap, a Square-like smartphone-based payments device, announced that it has added universal acceptance of mobile wallets for its merchants base. Ezetap has tied up with four Indian mobile wallet players – Paytm, MobiKwik, Novopay, and FreeCharge. Abhijit Bose, CEO and Co-Founder, Ezetap referred to the development as a fundamental change in how the payments industry works.
“We’re trying to focus on digital electronic transaction adoption. That’s the big mega picture that everybody is working on. The government is working on it,” he said, referring to National Payments Corporation of India’s rollout of its Unified Payments Interface, which brings interoperability from different bank accounts and wallets.
He referred to Nandan Nilenkani’s talk which he called it a “WhatsApp” moment for financial services, based on the dissemination of smart connected mobile devices to consumers and to merchants. Collectively, they allowing internet based companies to disrupt and transform industries, and unlock untapped markets, he said.
Ezetap’s card reader, priced at $50, needs an Internet-enabled smartphone to accept payments. Bose said that it works on a basic 2G network, and that the wallets don’t add an extra cost on Ezetap merchants. The standard monthly package costs Rs. 150 a month, for the basic mPOS goes up with premium services. Banks can choose to provide their own rates bases on their merchant relationship, the company said.
Ezetap currently works with Android and Windows Phone smartphones, and is coming out with an iOS version soon. Live for the last 24 months, Ezetap has deployed over 70,000 service points, Bose said. SBI, HDFC, Citibank, and American Express, an investor presently deploy EZtap’s mPOS solution, while Amazon, Bajaj Allianz, Airtel and BigBasket are some of their biggest customers, Bose said, adding that over 20,000 small merchants currently use its service.
Ezetap had raised raised $25 million (roughly Rs. 161 crores) in its Series C round in August 2015. Angel Prime-incubated mobile point-of-sale (mPOS) Ezetap has secured in fresh funding from Social+Capital, Helion Advisors, and Berggruen Holdings, Horizons Ventures, the private investment arm for Li Ka-Shing, and the Capricorn Investment Group. Ezetap earlier raised Series A funding from Social+Capital Partnership; Peter Thiel and others in November 2013 and $8 million Series B led by Helion in February last year.
Ezetap processes transactions worth over $1 million every day and has a customer base ranging from the most well-known enterprises to tens of thousands of small retail businesses.
“Our vision is to be the most preferred, lowest cost, and universal platform through which businesses transact and engage with their customers. This funding, along with Chamath’s active guidance from scaling Facebook, gives us the fuel to help Ezetap realize our vision and massive potential.”
Speaking about the thesis behind the investment, Chamath Palihapitiya, Founder & Managing Partner, Social + Capital, said: “India is uniquely positioned to build an entirely new financial services ecosystem thanks to advancements like UID. Moreover, it’s clear to us that this revolution will be mobile first – from mPOS to mobile wallets, and that Ezetap is the only company which can seamlessly and agnostically support this fast changing landscape.”
The growth in the space is largely driven by rising number of digital payments and increase in ease of access of financial services across various regions in the country. The company broadly competes with Mswipe, iKaaz, Bijlipay and Paynear.
Mswipe built the product in 2012. In July 2015, the startup, founded by Manish Patel, bagged US$25 million in a series C round of funding. The investors include Falcon Edge Capital, Ola Cabs, and Meru Capital as well as Mswipe’s existing investors Matrix Partners India, Axis Bank, and DSG Consumer Partners.
Mswipe’s WisepadTM was the first EMV Chip & Pin compliant mobile POS product in India. WisepadTM was launched in December 2013. The company launched a SmartPOS for Android phones called WiseposTM last in June 2015. “We believe in serving the smallest of merchants,” Patel, founder and managing director of Mswipe, says. “Mswipe aims to provide seamless mobile POS solutions to one million merchants across 400 Indian cities and towns.” Now, over 25,000 small merchants in India use Mswipe.
Mswipe works with several banks like Axis Bank, Corporation Bank, and SVC Bank to provide the POS solution. It is also present in the Middle East, the US, and SE Asia through partnerships.
India might be taking big leaps into ecommerce but the majority of the country’s one billion plus people still do a lot of shopping at corner stores for whom the spread of POS will be a big help. That coupled with the growing mobile phone base gives startups like Mswipe and Ezetap a huge market.
In October 2015 SoftPay Mobile raised US$1 million for its series A round. The round was led by Singapore-based venture capital firm Life.SREDA. SoftPay Mobile (not to be confused with the Hong Kong-based online marketplace for digital goods, or SoftTouch’s payment solution, or the Nigerian money transfer method) is registered in Singapore but is currently operating in Vietnam, Indonesia and Malaysia.
In Vietnam, the startup works with companies such as taxi company Mai Linh Taxi, and various smaller businesses. According to co-founder and CEO Christopher Low, it has seen a 300 percent month-on-month increase in processing volume since it launched in early 2015. Christopher tels Tech in Asia that more than 3,000 merchants in Vietnam have registered for the MPOS product.
With this funding, the startup will staff up in order to fuel its expansion to other Southeast Asian territories. It’s looking toward Singapore (Malaysia and Indonesia) in the next six months, being in “advanced talks with financial institutions” in this regard. “We will be looking to hire country managers with a strong experience in sales and preferably from the finance card payments industry,” Christopher says. “We have learned that there is a strong demand for MPOS among Tier 3 and 4 merchants,” Christopher explains. “These groups of merchants are traditionally ignored by the banks due to their perceived lack of volume. As a technology company at our core, we are able to fill in the missing gap […] for many large companies who want to implement an end-to-end MPOS solution for their businesses.”
MPOS solutions are considered by investors a particularly promising area of fintech, especially when it comes to developing markets with high smartphone penetration – quite a few of them in Southeast Asia.
“[MPOS] is a necessary sector in any fintech ecosystem,” Igor Pesin, Life.SREDA partner and investment director, says in a statement. “Between MPOS companies in [the region], SoftPay Mobile has one of the most experienced teams. They have already built and launched great products and proven that they can effectively acquire and keep small and big merchants,” he adds.
SoftPay Mobile’s key strength in this space will be its ability to acquire merchants, Christopher says. “Traditional MPOS companies have been focused on providing MPOS solutions to banks all along,” he explains. “MPOS companies are not willing to invest in a sales team as it is not their core business. For SoftPay Mobile, we believe that the business factors should drive the technology. Without merchants adopting MPOS, MPOS will not take off. Hence, we have a proven, cost-effective machinery to allow us to acquire merchants.”
Financial services technology startup goSwiff Ltd is looking to cover all the POS bases for merchants, from online to offline transactions. The company is already present in 25 markets across the world (as “white label” solution), with a strong focus on South-East Asia as its headquarters is in Singapore.
Chief operating officer Stefano Diemmi, noted: “We are more than just a mobile POS company, we can provide something more than just accepting card payments”. “Card payments right now make up 99% of the transactions we generate,” he conceded, “but we are integrating with other technologies such as bitcoin and loyalty programmes.”
This focus on mobile POS came about two and a half years ago – previously, goSwiff was focused mainly on e-commerce payment platforms. “We feel that there is a big opportunity here. While it probably is not really an innovation, our novelty comes from the way we deploy our solutions to our partners,” he said. Diemmi prefers to refer to this market as the ‘smart POS’ market.
In Singapore, goSwiff is working with DBS Bank to pilot its solutions among several merchants. Even with markets that have stringent regulations, goSwiff has flexible technology that can integrate with local systems, he claimed.
goSwiff is currently going through a new round of funding, according to Diemmi. “We are looking for strong partners to support the growth of the company – not just financial support, but also experience and knowledge,” he said. This round of funding follows a ‘friends and family’ round, and would mark the first time goSwiff is raising funds publicly. In the next six to 12 months, goSwiff will be looking to expand the functionality of its platform, and will be growing its team in Singapore to support this effort. “In South-East Asia, we are strong in Indonesia, Malaysia, the Philippines and Thailand – we are looking to expand to Cambodia, Myanmar and Vietnam,” Diemmi said.
In September 2014 Jakarta-based mobile point-of-sale (mPOS) startup Moka announced that it received seed funding of an undisclosed amount from local venture capital firms East Ventures and Wavemaker (among its seed and pre-Series A investors).
Moka seeks to make mPOS capabilities accessible to everyone, by providing solutions for ringing up transactions, accepting payments, and creating reports.
“Traditional POS systems are expensive, difficult to use, and involve costly maintenance,” explains 25-year-old co-founder and CEO Haryanto Tanjo. “With Moka, all they have to do is download the app on their iPad, sign up, and start selling.” “With our cloud technology, business owners can manage multiple stores and gain critical insights such as the best-selling items at different locations, or items that are running low on inventory.”
He adds that because Moka’s system is cloud-based, business owners can get all their sales intel without leaving home.
Moka’s co-founders are both young Indonesian natives, whose track records speak for themselves. Tanjo attended UC Berkeley, earning a Bachelor’s degree in industrial engineering and operations research in 2009. He graduated at the age of 20 and went on to received a Master’s degree in business administration from UCLA Anderson. He worked at McKinsey & Company in Jakarta before starting Moka. Laksmono earned a Bachelor’s in Computer Science from California State University in 2009 and a Master’s from the University of Southern California in 2011. His first startup was called trueRSVP (now Planana), which received funding from Tech Coast Angels. He launched the company at the VentureBeat DEMO conference in 2012, and won the DEMOgod Award. Laksmono also worked at Google, Yahoo, Zynga, OpenX, and Albumatic.
Moka charges a monthly subscription fee of Rp250,000 per outlet. Moka offers a POS app on iPads and Android smartphones (and for Android tablets soon), and a web portal that lets business owners view sales reports and manage inventory across multiple outlets. “It will get bigger as 70 million additional middle-class and affluent consumers are coming [to Indonesia] between now and 2020,” he says. “To catch up with business growth, retail stores must run their operations efficiently and be able to access their information in real-time.”
In December 2015 Moka launched its payment solution in collaboration with state-owned lender PT Bank Mandiri Tbk (BMRI) as the acquiring bank. Since launching its PoS solution early in 2015, Moka has acquired over 350 paying stores. Now, Moka wants to extend its value by enabling debit and credit card payments on its platform. “There are 57 million SMEs in Indonesia, majority of who still do their business traditionally. We want to make POS and card payments accessible to these merchants, and allow the traditionally cash-based cafes, barber shops, and specialty retailers to offer their customers the convenience of card payments,” said CEO & Co-founder Haryanto Tanjo.
In addition to having Mandiri as its acquiring bank, Moka has also partnered Telkomsel, Indonesia’s largest telecom company. Telkomsel will offer the bundle of Moka mPOS and Telkomsel data package as a business solution for its SME customers. With Moka mPOS, merchants only have to provide their identity card (KTP or passport), and it only takes three working days to onboard a merchant.
Photo credits to Getty images, Shutterstock
Life.SREDA VC is a global fintech-focused Venture Capital fund with HQ in Singapore