European mobile payments player, iZettle, which offers smaller merchants the ability to process card payments via its mobile card readers, is expanding into what amounts to small business loans — announcing a capital advance product, called iZettle Advance, which will be available to select iZettle customers who need funds to grow their own businesses. So it’s basically moving onto even more of the territory where traditional banks fear to tread.
iZettle Advance will be rolled out gradually in its European markets starting with the Nordics, says CEO Jacob de Geer. The startup’s fastest growing markets at this stage are the Nordics, the U.K. and Brazil — although he adds it currently has no plans to offer the Advance product in Latin America at this point.
There’s no word on what proportion of its customers could be granted loans at this stage. The amount that can be borrowed will also depend on the business in question, so on factors such as how much revenue they are processing on a monthly or yearly basis (a figure which iZettle is of course privy to, given its existing role processing their card payments).
Expanding into offering a capital advance product is a bid to tackle another pain-point for small businesses, says de Geer. “Everyone told us that getting access to capital to growth their business was something they were all looking for but nothing they could find from the traditional banks. So with that in mind we thought this was a suitable product for them,” he adds.
iZettle customers will be pre-assessed for the financing so there’s no application process — to minimize the admin burden on SMEs.
“There’s such a big gap in the market,” he adds. “Small businesses are looking for simple solutions and instant access — and we think we can provide them with that, with the current platform set-up that we have.”
Clearly there’s a customer retention play here too, given the capital advances will only be offered to existing — and presumably longer term — iZettle users. There’s also a platform lock-in element, as loans are paid back automatically as a fraction of the customer’s card sales. Bottom line: you’re less likely to switch to another mobile card payments provider if your card payment processing is tied up with paying back a business advance to your current provider.
The rate at which the loans can be paid back can also vary, based on the customer’s month to month sales — to better fit with the dynamics of smaller businesses, says iZettle. And there’s no interest charges. It’s a fixed fee for the advance, which also varies per customer. The amount that can be borrowed is a moveable feast too — once again depending on the business in question.
de Geer says iZettle is leveraging what it knows about its existing users to be able to extend them the offer of business financing, although he says it’s also doing some additional risk assessment — such as looking at “more traditional measures”, like credit rating.
“We have a pretty sophisticated on-boarding process since we have to deal with risk with every merchant that we on-board, both from a regulatory compliance perspective but also from a risk perspective. We can leverage pretty much on the things that we’ve come to learn over the last five years,” he says.
“We add on top the history that the merchant has with us, over the time that they’ve been a customer — since this is a product that will only be offered to iZettle customers and not to anyone,” he adds.
The loans product is being financed by iZettle initially, according to de Geer — rather than it working with a bank partner to provide capital for the loans. Although he says they may look to change how the product is funded in future, depending on how it performs and scales. Presumably even potentially ending up working with the banks who have traditionally been less than keen to loan to the segment of the business market iZettle addresses.
“Right now we’re doing it by ourselves. I would assume that if the product proves successful, which we strongly believe, I wouldn’t be surprised if we tried to fund it in another way. I think time will tell. But if we get the advance big enough and get it across multiple markets I think we’re going to need to rethink how we fund this,” he tells TechCrunch.
The initial launch is being funded by a new round of Series D finance for iZettle, also announced today. The round of €60 million ($67M) is led by prior investors Intel Capital and Zouk Capital. Existing investors Creandum, Dawn Capital, Index Ventures, Northzone and 83North also participated in the round.
The Series D investment will also be used for “continued growth” focused on iZettle’s existing products. “The market is far from saturated,” argues de Geer. “We have a great position in the European space and also LatAm that we can grow significantly in all the markets where we current play. There are also new markets. We’re currently in nine markets in Europe. There’s still a few to cover.”
Does it have any designs on entering the U.S. at this stage? Europe remains “very prioritized” for iZettle, says de Geer, but he adds it’s not ruled out launching over the pond. “We’re still looking into the U.S. market and the potential of launching in the U.S. Nothing has been decided,” he notes. In the U.S. there are of course more rivals to contend with — such as Square, a company de Geer names as the rival iZettle shares most business “DNA” with.
Meanwhile, here in Europe, yesterday another of iZettle’s rivals in the mobile payments space, SumUp, also pulled in a new tranche of financing — announcing a €10 million expansion to its fifth round, from investors including BBVA Ventures, Groupon and American Express. SumUp tells TechCrunch it now has more than 300,000 customers, and is anticipating breaking even next year.
Its latest funding will be used to expand onto iZettle’s home turf of Sweden this year, along with another unnamed market that’s switching to EMV payments as its market standard later this year. Those two new additions will bring SumUp’s operational count to 15 markets.
Also on the slate for its new funds: a new proprietary NFC card terminal model that’s compatible with Apple Pay. It says it’s currently testing this in a closed beta, with no announced timeframe for shipping it to merchants yet.
iZettle has already launched a product in the U.K. which supports Apple Pay and other contactless payment solutions. “We see both Apple Pay and Samsung Pay as the first true mobile payments play that we believe will fuel this growing industry,” notes de Geer.
iZettle isn’t breaking out customer numbers at this stage but he says it’s making a conscious decision to expand its product portfolio — via the new small business financing offer — in order to continue growing the business, rather than driving for profitability at this point. Is that a necessity, given the small margins in the mobile payments space (one of the reasons that, historically, banks have focused their efforts on monetizing larger business entities)?
“Yes and no,” says Geer. “It’s fair to say that there are other products with better margins [than payments] but still I would say that the current product has really taken us to a position where we can decide whether we would want to be profitable or whether we want to continue growing, obviously with a loss.
“I think we are at that junction. I think this [Advance product] just makes a lot of sense. We’re so heavily regulated, and we can use that regulation to actually launch similar products. And solve problems in the same kind of merchant category we’re currently in.”