The European mobile POS space is a very crowded one, with a raft of startups duking it out to differentiate their offerings and grab market share from each other. One way to poach customers is of course to undercut the competition — which is what iZettle did, back in July, by launching a sliding per transaction fee that could drop as low as 1.5% for U.K. business processing more than £15,000 per month via its mobile card readers. iZettle’s move looks to have sparked an mPOS price war, as today rival startup SumUp has announced a swathe of fee cuts across European markets.
Rather than offering a sliding rate, SumUp has opted to cut its per transaction fee from a flat fee of 2.75% to a range of different flat fees. In the U.K., Ireland, Italy, Austria and the Netherlands, it’s cutting its fee to 1.95% for all debit and credit card transactions. In France the fee drops to 1.75%, in Spain it’s down to 1.5% and in Germany the local debit card fee drops to 0.95% but the credit card fee remains at 2.75%. SumUp’s three remaining European markets – Portugal, Belgium and Russia — remain unchanged at 2.75%.
SumUp’s U.K. transaction fee cut means local SMEs wanting to use the services of a mobile card reader startup will have to figure out what’s more attractive: a guaranteed 0.8 percentage point fee-cut regardless of how small monthly takings are, or the lure of a potential 1.25 percentage point reduction (using rival iZettle’s sliding rate). On the surface SumUp’s flat-rate cut looks likely to appeal to smaller businesses with variable monthly takings, while iZettle’s slider could attract those that have more stable monthly revenues (and which take in more than £4,798 per month: the point at which iZettle’s sliding rate matches SumUp’s fixed 1.95%).
The 2.75% per transaction fee that’s still leveraged by many European mPOS startups (including iZettle and SumUp in some markets) has been something of a standard, although mPOS category pioneer Square (which still hasn’t launched in Europe) also offers an alternative of paying a $275 flat fee per month, rather than the per transaction percentage.
Speaking to TechCrunch in July, iZettle’s Jens Münch described the 2.75% rate as “a hangover from the U.S.”, adopted by Square because of national cost structures. Different cost structures in Europe made rate cuts inevitable, argued Münch. “We knew that at some point that [2.75% rate] was going to be challenged,” he said at the time, when asked for iZettle’s workings on its rate cut.
For its part, SumUp said today that cost savings from moving to its own technology stack have enabled it to pass on savings to its customers via reduced per transaction fees. “Following our authorisation as Payment Institution by the Financial Conduct Authority (FCA) earlier this year, we are now underwriting, processing and settling transactions end-to-end through our own technology stack. This gives us a significantly lower cost base. We are excited to be able to pass the savings on to our merchants,” said co-founder Stefan Jeschonnek in a statement.
Asked whether the new lower fee is sustainable, from a business margin point of view, Jeschonnek said it is, arguing that it would help SumUp expand its business by reaching new market segments. ”The lower fee enables any business to accept card payments, even the more price sensitive ones. As a result, we expect to be able to tap into new market segments. Our long-term business model is built around transaction-based revenue and this remains the case even with the reduction of transaction fees,” he told TechCrunch.
The startup, which has raised more than $20 million to date, according to CrunchBase, and counts Groupon among its investors, said the new lower fees will automatically apply to all transactions of its merchants, starting from today.
It remains to be seen whether further mPOS rate cuts will bleed out across Europe. iZettle previously told TechCrunch it is using the U.K. as a testbed for its sliding reduced rate, with a view to potentially rolling it out into the other markets where it operates. SumUp’s move adds more imperative to that decision.