Mobile Terminals

There has recently been a flurry of announcements about “mobile terminals” – adapting a mobile phone so that it can accept card payments. This has always struck me as a much more realistic proposition within the ill-defined “mobile payments” space than the over-hyped “mobile NFC” idea. Firstly, as with all new payments technologies, it is much easier to break the “chicken and egg” problem by selling first to the merchant-acquirer side of the business than the issuer-cardholder side. Secondly, mobile terminals offer an immediate benefit – enabling small, mobile merchants such as plumbers or market stall traders the opportunity to accept card payments in addition to cash.

Square was the grandfather in this space with its distinctive square-shaped dongle which plugs into a mobile phone and allows cardholders to pay by swiping a magnetic stripe card. Square is very popular in the US, claiming 2 million users and $8 billion in payments processed per year. However, the company does not yet allow payment with EMV chip cards.

Swedens’s iZettle, sometimes described as “the European Square” does just this. The dongle in this case accepts chip cards and iZettle claims some 75,000 users and 50,000 merchants in the Nordics and UK. However, cardholder authentication is via a signature applied to the smartphone screen, rather than a PIN. This has led to a dispute with Visa Europe, which has refused to accept iZettle payments in some markets. Although iZettle is now offering a workaround involving SMS messages and manual entry of the card details, it sounds rather clunky.

Germany’s PayLeven, meanwhile, now offers full chip and PIN card payment acceptance with the dongle in this case incorporating a PIN-pad.

Many other companies are in the process of launching similar solutions, including mPowa and Sage Pay in the UK, StreetPay in Germany, the major POS terminal supplier Verifone with “SAIL”, and PayPal with “Here”. The card schemes are also involved through major investments. Visa Inc has a share in Square, while both MasterCard and Amex have invested in iZettle. Clearly, this is an area to watch and we should expect intense activity over the next few months as the industry leaders emerge and battle for market share.

As always with new payments propositions, the details are sometimes difficult to establish. Most of these schemes appear to charge merchants a single fee of about 2.75% of the transaction value, which sounds very competitive compared with conventional merchant service charges levied on small merchants by traditional acquirers, but that raises the question of how the new entrants actually make money? Another question is around chargebacks and disputes.   Most of the new players claim that signing up for their new solutions is much simpler and quicker than signing up as a conventional card scheme merchant, but that makes one wonder whether there has been any trade off in terms of payment guarantees, for example. And finally, there is, as ever, the question of security. Am I, as a cardholder, going to be happy about inserting my card and entering a PIN into a mobile phone dongle presented by the tradesman at my front door?

No doubt answers to these questions will emerge with time. In any case, for my money, using a mobile phone as a card payments terminal is a much more sensible business proposition than using a mobile phone as a card.

Nick Collin, Banking Automation Bulletin, December 2012