"Which mobile payment (mPayment) solution should we be backing?" is a common question from TFC’s clients. Our response is that mPayment is a tricky space because it’s difficult to build a critical mass of buyers and sellers simultaneously.
In 1999 PayPal broke ground for payment start-ups by enabling payments and money transfers to be made through the Internet on a global scale. PayPal was acquired by eBay in 2002 and ever since its alumni have been helping fund the next generation of mobile payments startups. Square was launched by Twitter founder Jack Dorsey in 2009 to replace traditional chip and pin card terminals and cash registers. There are a number of interlocking elements to the solution:
- Square Reader plugs into a sellers smartphone to swipe cards
- Square Register allows sellers to manage the transactions
- Square Market allows sellers to create a free online storefront
- Square Wallet allows customers to view sellers menus, do mobile payments, receive virtual receipts and find other Square sellers
Square charges a 2.75% card transaction fee but there is no monthly fees or set-up costs. The company’s valuation in September 2012 was 3.25 billion dollars. Square has prepared the ground for mobile payment (mPOS) start-ups by enabling smaller merchants to accept card payments.
The glut of Square mPOS clones in the UK include:
- Handpoint - 2.65% to 1.49% transaction fee
- Intuit - 2.75% transaction fee
- iZettle - 2.75% to 1.5% transaction fee
- PayaTrader - 2.9% to 2.3% transaction fee
- payleven - 2.75% transaction fee
- Shuttle - 1.4% transaction fee
- SumUp - 1.95% transaction fee
- WorldPay - 2.75% to 1.95% transaction fee
(All require a card reader, ranging from £16.62 for SumUp to £82.50 for Handpoint, iZettle, PayaTrader and Shuttle)
In August PayPal finally hopped the pond to spoil the party by launching Here in the UK with 2.75% transaction fee (reader £99.00) or 3.40% + 20p for magnetic swipes or card not present (CNP) transactions.
Based on current pricing mPos readers are a poor option for sellers with an annual card turnover of more than c.£15,000 per year where a traditional terminal hire solution will be more cost effective.
Bleeding-edge UK teams are experimenting with mobile money apps (mWallet) - that do not require additional hardware - as a private comms channel between seller and customer. These lean platform-as-a-service (PaaS) teams are constraining themselves to making money without the traditional transaction fee. They are looking to surpass Apple’s transactionless Passbook and Placecast’s 10m users and Venmo’s $26.2m acquisition by Braintree.
The mWallet UK start-ups to watch are:
- CloudZync zWallet - Tiered monthly service fee whereby sellers buy credits. Credits buy services including vouchers, loyalty units and messaging. Ranging from £40 per month for 500 credits to £160 for 3,750 credits. Base of 280 sellers in London and Essex.
- Droplet - Fee free. Customers preload their account by card or direct debit. Base of 250 sellers in Birmingham and London. TechCrunch thinks Droplet will make money from interest on deposited funds.
TFC thinks that focussing on vouchers, deals and loyalty in the UK is a good angle given at least 60% of customers carry Clubcard or Nectar. mWallet is a leapfrog technology so watch out for any UK start-ups with connections to countries with low payment card penetration, such as India (20%). A start-up with connections to Mobikwik for example would be really interesting. The next frontier for mWallet is integration with Bluetooth Smart retail beacons and virtual currency, but more on those in a future post.
This field guide was a collaboration between Ro and Neil.
(The Monty Python Life of Brian Haggle scene is here)