To Grow Merchant Customers, iZettle Slashes The Cost Of Its Card Readers To Zero

iZettle, the Swedish payments startup that has been called the ‘Square of Europe’ for its mobile-based point of sale services, is taking its business development strategy up another notch today: the company — which currently processes about $2.3 billion in transactions each year — is launching 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. (Those dongles have now been discontinued.)

Jacob de Geer, CEO and founder of the company, acknowledges the move is “bold”. It will, after all, hit the company’s margins, which will now be based only on is transaction fees of between 1.5% and 2.75%, depending on volumes — a fee it already needs to divvy up with others in the payment processing chain. But he also describes it as a necessary move to try to reach a more critical mass of merchants to use its services.

“We’re really taking away the final hurdle of taking card payments,” he says. “This is a calculated risk, but we’ve spent the last couple of years figuring out the business model and how we can make it happen.” The trick, he says, is that iZettle is working with third parties to design the hardware, taking that R&D cost, and production, out of iZettle’s balance sheet.

The first markets that will see 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.

iZettle has not revealed updated customer numbers, but last year de Geer noted “a couple of hundred thousand” users. De Geer says that iZettle is also close to opening up a new market “either in Europe or Latin America” but would not say which one or when.

The move to slash the cost of a card reader comes an a critical time for iZettle, which has raised nearly $110 million since 2010, and for the wider mobile payment market. Services like Square and PayPal’s Here appear to be stalling somewhat in their growth (with layoffs hitting the latter company as it prepares to be spun off from eBay); European startups Payleven and SumUp continue to be a competitive threat to iZettle; and everyone is eagerly waiting to see what the long-term impact of Apple Pay, and Google’s own mobile activities, will be. And that’s before you consider what very large credit companies like Visa, MasterCard and American Express may do on their own.

The big hurdle for everyone, however, is a fundamental lack of adoption among the long tail of small merchants, which still make up the majority of businesses in many markets and collectively constitute a very big opportunity for iZettle and the rest. Today, there are still 20 million small businesses in Europe that do not take card payments.

 

It’s this long tail of merchants, who may not even be making very many monthly transactions, that iZettle is targeting with its Lite reader.

“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.