A bit of a setback today for mobile payments and specifically iZettle — the startup modelled as a kind of “European Square” for merchants to take card payments on their phones. The company today had to shut off accepting Visa cards in three of the markets where it has been running pilots — Denmark, Finland and Norway — over what appears to be a problem with how it authenticated users on its platform, using an electronic signature instead of a PIN. The problem came to light when users started to receive emails from iZettle with the news (we have one from a reader below) and comes at a time when competition is heating up among point-of-sale mobile payments players, with mPowa, who you might better know as Square’s hand nemesis, now extending its payment services to Android; and Square reportedly getting a $200 million investment on a $3.2 billion valuation.
iZettle’s CEO Jakob de Geer describes the need to shut down Visa acceptance as “disappointing”, “annoying,” and “puzzling,” but also notes that he thinks it’s just a short-term problem: “I’m pretty confident that we’ll find a way forward,” he told TechCrunch. “You have to regroup and adapt; that’s part of the game part of being in a disruptive space.” For its part, a Visa Europe spokesperson tells TechCrunch that the problem arose over Visa’s “standard acceptance device requirements:”:
“Visa Europe supports the development of new types of acceptance devices to be used by small merchants not previously accepting cards. However, Visa Europe has not yet agreed for Visa cards to be accepted on the iZettle platform, as it does not currently meet our standard acceptance device requirements.”
Some 15,000 active merchants across the three countries have been affected, says De Geer, with the dispute between Visa Europe and iZettle has been “in the works for a while now.”
Visa Inc. in the U.S. is an investor in Square, and MasterCard recently became an investor in iZettle, so it is easy to think that this story may be a case of muscle flexing between the two larger companies: perhaps a sign of Square setting the stage for a European launch?
De Geer says that’s very unlikely because Visa Europe is an association owned by its members in different markets, while Visa Inc is a publicly-traded U.S. company. “Two completely different creatures that work differently,” says De Geer. “I think people are linking these together but it doesn’t have anything to do with the Square investment.”
Worth noting, however, that on Visa’s corporate site the relationship between Visa Inc. and Visa Europe is described as “…mutually invested in each other’s success. The two organizations are united by a common global brand and work together to ensure Visa’s brand integrity, interoperability reliability and security of Visa products and systems.” So there could be more to this tightening of policy than meets the eye. (Thanks, Patrik Svensson, for the tip on that detail.)
What this definitely highlights, however, is that the business of linking up with requirements from existing players can be a messy and confusing business. De Geer says that iZettle has been approved by Master Card, American Express, Diners Club and EMV, the global standard for chip cards.
(This potentially also points another issue about these different payment services: they are all too reliant on existing, large players. This is where a PayPal or Dwolla can stand out and potentially be more disruptive and successful, notes Yann Ranchere, a financial services specialist out of Switzerland.)
Visa Europe’s spokesperson would not tell TechCrunch exactly which requirements are not being met by iZettle, TechCrunch understands that it may have something to do with how payments are authenticated on iZettle’s platform: a consumer pays using the chip on the card — different from the magnetic swipe strip most common on U.S. cards — but does not enter a PIN to authenticate; rather he signs on the screen of the device. This is an acceptable form of payment in the Nordics and PIN on mobiles is less secure, claims De Geer, but he admits that it may be that Visa wants the PIN element worked into the platform anyway (iZettle also notes that its method is approved by EMV).
What’s confusing is that De Geer tells us that Sweden, where iZettle has a commercial service in operation, does not have to shut down its Visa payment option. The UK, where iZettle is running a trial, never had Visa as part of its service — possibly because of this ongoing issue.
Visa Europe would not say if it was issuing similar orders to other mobile payment providers, but mPowa, which offers a similar kind of product to iZettle’s and Square’s, confirms it is in the clear.
“We don’t have a problem because we’re not chip and sign,” Dan Wagner, CEO of mPowa, told TechCrunch. In fact, the company has yet to launch and chip-and-pin services at all. These, he says, are coming in two month’s time. The company recently extended its dongle service to cover Android devices as well as iOS. It plans Windows upgrades “in due course” too. He says the company is currently under NDA with “major banks and telcos” to launch white-label versions of mPowa’s payment service in different markets.
Aleksander Soender passed to us the email iZettle sent out to users:
We are sorry to report that based on a policy decision by Visa Europe, we have no choice but to stop processing Visa card payments in Denmark, Finland and Norway on August 1.
Please know that we will continue to accept MasterCard and Diners Club cards, so for now those are the cards you’ll need to ask your customers to pay with. We hope we can bring Visa card acceptance back to Denmark, Finland and Norway shortly and will of course keep you posted on the development.
Thank you for your ongoing support and use of the iZettle mobile payments service. We very much appreciate your business and hope iZettle will still prove a valuable service for you.
We wish you a pleasant summer and hope to be back to you soon with news that we’ve resolved this disappointing situation.
Best wishes, Jacob de Geer, CEO
iZettle also posted about the news on its blog.
Update: iZettle has wanted to make a further clarification on how it differs from mPowa. “We are a ‘one stop shop’ whereas with mPowa you need to sign up separately to get a merchant account with the bank to even be able to take the first payment (and getting a merchant account is often is a lengthy procedure),” notes a spokesperson. “We also offer personal accounts with iZettle for individuals, but mPowa’s service is only for merchants.”