As mobile payment startup Square faces reports that it’s delaying an IPO amid growth problems and other pressures, iZettle, the Swedish mobile payments company that has been referred to as the Square of Europe, has raised another €40 million ($55.5 million).
In an interview, CEO and founder Jacob de Geer said the funding will be used to continue building out its business, namely through acquisitions to fill out its small-merchant service offerings beyond payments; and more expansion in Latin America and Europe, the two regions where iZettle is currently active (in nine countries in total: Mexico, Brazil, the UK, Spain, Germany, Sweden, Denmark, Norway and Finland).
The Series C round was led by Zouk Capital, with participation from a couple of other new investors, Dawn Capital and Intel Capital, as well as previous backers Creandum, Greylock, Index, Northzone and SEB. Prior to this, iZettle has raised $46.7 million, with investors in previous rounds also including three financial services giants: American Express, MasterCard and Banco Santander.
iZettle is not disclosing its valuation, except to note that it is nowhere near the billions that Square has been valued at in its most recent rounds. “Our valuation is not even close to Square’s,” De Geer told me in an interview with a little laugh.
When iZettle first launched its service in 2011, the mobile payments business was in a different place.
Coming off the back of a number of false starts from mobile carriers and banks, the rapid growth of smartphones opened up a new opportunity. A small card-reading device that plugged into a smartphone’s headphone or charging ports could turn that handset into a card payments terminal. Combine that with a simple payments app and a commission structure that undercut the incumbents, and the tech world had a new business model on its hands.
It was the perfect sell to merchants that traditionally had too little turnover to make investments in card services worth their while, but happened to own an iPhone or Android handset. Square was the first to really break ground in this market, but many — including other startups like iZettle but also bigger companies like PayPal and Intuit — followed.
Fast forward three years and the market has matured. The low commissions meant that companies needed very high volumes of sales to make the model work, so services have all added more services on top of the basic payments, and expanded to new markets. But even so, it’s not clear that early movers in those first markets have been followed by rapid wider adoption from recalcitrant small businesses. iZettle estimates that their addressable market still has “millions” of businesses yet to accept card payments.
iZettle, following others in its field, has expanded to more point-of-sale services like full-fledged cash registers and enhanced apps, along with updated card reading hardware, and it has gotten more aggressive on expanding to new markets, with a big move into Latin America last year in partnership with Banco Santander.
“We are not the companies that we used to be,” de Geer says. “The hype has now led to a more mature approach.”
That said, de Geer goes to lengths to explain how, while iZettle and Square may have both evolved, they are not the same kind of company today.
“We’re not focused on e-commerce at all,” he says. “We’re extremely focused on offline businesses and offline merchants at their point of sale,” pointing out Square’s push into e-commerce activities that move away from physical stores altogether.
De Geer points out that the two have taken different approaches to the idea of how to tackle growth.
While we have heard people in the European tech world complain that startups in the Old World are undervalued compared to their U.S. counterparts, this could be one moment where that might come in handy: it means that iZettle has had less pressure to deliver at a certain level, and frankly less money to go full throttle.
“We come from the European perspective where typically we are not as well funded,” de Geer says. “We are 150 employees spread across nine markets. They have 700-800 largely for one market, the U.S..
“It’s not that Square is doing the wrong thing and we are doing the right thing. They may even turn out to be winners, even if right now it is a tough situation.”
Then there is the core of iZettle’s technology. It is built around chip-and-pin services, which have yet to really become common in the U.S. but are the standard in Europe and elsewhere. The reason this is significant is that chip-and-pin tends to see significantly less fraud than mag stripe-based services.
“We operate on a 2-basis-point fraud level,” he tells me, meaning that for every 100% of transactions, on average 0.02% are fraudulent. The offline average for chip-and-pin is between six and eight basis points, he says, and U.S. companies using magnetic stripe and swiping services typically operate on a 30-basis-point fraud level.
For the next stage of growth, iZettle plans to focus on more of the same, except with some twists. De Geer says that Latin America and Europe are “good bets” for the company since it’s already active in those regions.
In terms of acquisitions, the idea will be not to move into new product categories like e-commerce but to add value to the basic, low-margin payments service by way of more services that enhance the experience. “There are so many different layers on top of payments,” he says. “It’s the backdoor to merchants.”
Targets, de Geer says, will include loyalty services, or CRM software — startups that are promising “but may not be well funded or able to find effective enough distribution channels. They can add value for our merchant customers.”
This strategy also appears to be at the heart of Zouk’s interest in iZettle.
“At the core of Zouk’s investment thesis is the emergence of what we call resource intelligence: recognising that not only should we be doing more with less, but that resources, process and systems are more connected than ever,” said Nathan Medlock, a principal in Zouk’s Growth Capital Team who is joining iZettle’s board. “iZettle is a great example of this concept in action.”
For all the contrasts,  however, Square — by virtue of its mindshare in the industry — has had an impact on iZettle. De Geer says that closing their fundraising took a lot longer — some four to five months — compared to its Series B, and he says the reason was down to the reports of Square’s growth problems. “That stalled things a bit, and it look longer than we expected,” he says.
How did they close the round? “When we started drilling down to the numbers, we are fundamentally different,” he said.
