MasterCard joins EUR25m iZettle funding round

Visa and MasterCard are planning to move US credit cards to "chip-n-PIN" by April 2013. How long will it be before Square, PayPal and TEDIPAY react to that and introduce their own EMV readers. That's where the main iZettle's focus should be - the USA is going to be the main "chip-n-PIN" battle ground during the next decade.

@ Alexander

No, they're introducing EMV, not necessarily chip and PIN. 

EMV is a global standard for inter-operation of "chip cards". Whilst "chip" can be used without PIN (e.g. relying on a signature instead), that is not Visa's and MC's plan.

I suggest you read the story I linked to, which itself contains a link to Visa's own blog, which contains the quote:

"One thing that's clear from the questions is that there's a lot of confusion around the myth that EMV means "chip-and-PIN." It doesn't in many countries, including the U.S. That's because, in the U.S., we can rely on online processing where transactions are transmitted in real-time to the issuer for approval. With that in place, there's no need for the offline authentication that was the genesis of chip-and-PIN." 

Visa was laughed at by major US retailers when it first coined the idea of "chip without PIN" (Visa termed it "Chip & Choice"). However, when EMV was just launched in the UK, there was no PIN, just "chip and signature". Then, as originally intended, Visa and MC added PIN to the equation. So, Visa is playing it by the book in the USA now too. 

Visa is facing a hard task of pushing both EMV and NFC into the market (not that one contradicts the other). Hence, they are looking for ways to squeeze both technologies in at the same time, by cutting corners.

Right, glad you now accept that Visa isn’t planning chip and PIN.

Not at the first step, you are right, Matt.

As per Visa's own blog: "Visa will continue to support a range of cardholder verification methods (CVMs) with EMV chip, including signature, online PIN and no-signature for low-value, low-risk transactions."

Note the reference to "online" with regard to PIN. Guess what - over 90% of the transactions in the USA are online.

PIN is about adding the second authentication factor to an EMV transaction. Without PIN, EMV will only address counterfeit card fraud. It won’t address lost and stolen cards, or friendly fraud, so it’s just a small portion of total fraud costs.

Getting back to your initial point, the fact that chip and PIN is - assuming it comes - still a way off, I'd suggest iZettle is right to ignore the US and concentrate on the massive European market on its doorstep. 

Not quite: we need to compare apples to apples.

In Europe, iZettle can target primarily very small or mobile merchants (this is not to say that it's a small niche). If I am a corner shop owner in Europe, I am likely to have an EMV terminal.

In the USA, iZettle can target virtually all merchants by providing a cost-effective EMV "entry point". If I am a corner shop owner in the USA, I am not likely to have an EMV terminal, hence I am iZettle's potential customer. Their solution would allow me, in that case, to better serve European customers, as well as to obtain a number of EMV-related benefits offered by Visa/MC (PCI compliance etc).

For that to happen, iZettle would need to add "online PIN" function to the EMV protocol they already implemented. That is not hard to do.

Both SQUARE and iZettle obviate the need for merchants to get an acquirer account from their banks and still permit them to accept credit card payments. For this service, SQUARE (and maybe iZettle) charges 2.75% fees as against lower direct credit card MDF of around 2%. A merchant with a non-EMV POS (conventional, not SQUARE) in the USA already has an acquirer account, enjoys lower card acceptance cost than possible with SQUARE (and possibly iZettle), will get an EMV upgrade from current POS vendor if and when EMV happens in the USA, and is therefore unlikely to find strong enough reason to switch to iZettle just for EMV. 

As for Europe being a massive market for iZettle, that depends upon the size of the following use case that forms the bedrock for iZettle and other SQUARE-equivalents: (a) Consumer wants to pay by credit card, (b) merchant wants to accept credit card, (c) merchant goes to bank to get an acquirer account, (d) bank considers merchant's risk profile as high and rejects merchant's application, (e) hence merchant goes to iZettle and is able to accept credit card payments. 

According to many reports, (a) is smaller in Europe than in the US. Having personally encountered a big box retailer in Germany offer a co-branded credit card but refuse to accept it in its own stores - apparently it uses its credit card only for branding - I'm personally biased into believing that (b) is also smaller in Europe than in the US. 

Against this backdrop, it's going to be interesting to watch how this market unfolds.