Mobile Card Reader Market Gets Crowded as Vendors Eye Global Growth

Small business owners in Europe certainly won't have a shortage of mobile payment options to choose from, as more companies enter the market locally and from the U.S.

Berlin-based SumUp announced last week that it is joining a crowded field that already includes iZettle, mPowa and Payleven, as well as American powerhouses Intuit Inc. with GoPayment, already available in Canada, and Square Inc., which has expressed a desire to enter the European market.

SumUp has raised a few industry eyebrows because it staged only a four-month beta testing period in Germany and moved into a full launch this week in the United Kingdom, Germany, Ireland and Austria.

But SumUp has the financial footing to allow such a strategy. Hamburg-based Shortcut Ventures GmbH, which aids start-ups in the digital market with venture capital, revealed on its blog that it is heading a group of investors supporting SumUp's entry into the mobile payment market.

The blog did not reveal the amount of funding, but TechCrunch reported it is more than $20 million and Swiss venture capitalist Klaus Hommels, an early investor in Skype, Facebook and Xing, is also part of SumUp's investment group.

SumUp CEO Daniel Klein could not be reached for comment.

Despite the funding levels, SumUp will face some challenges and a potentially short shelf life because its technology does not accept PIN transactions, says Gareth Lodge, a London-based industry analyst with Celent.

SumUp's system, which works on Apple Inc. mobile devices and Google Inc. Android devices, offers both a mag-stripe and chip-based card reader. However, SumUp calls for the consumer to use a finger to sign for MasterCard transactions, while Visa customers have to take extra steps that enable manual entry of full card numbers.

This poses a problem, considering the European Central Bank has made it clear that only cards that use EMV chips should be issued in Europe in preparation for the Single Euro Payment Zone, Lodge says.

Plus, SumUp will face stricter liability rules if it does not accept chip-and-PIN payments from EMV cards, Lodge says.

Visa Europe recently restricted iZettle's Visa transactions in its core market of Finland, Denmark and Norway because its reader currently does not accept PIN transactions. 

London-based mPowa hopes to gain from any such fallout because its card reader accepts PIN transactions through software that turns the handset screen into a PIN pad. 

In addition to those concerns, Lodge says it's possible that these companies are overestimating the size of their market.

"I'm not quite sure it's as large a market as these companies make it out to be," Lodge says. "In many countries, 'card' really means debit cards, and debit card transactions are often a fixed price and cheap."

Still, Europe may need more market entrants because no company has "cracked the market in the same way that Square has in the U.S.," Lodge says.

Ironically, Square made its biggest splash yet last week in news that did not include its card reader when announcing that Starbucks Corp. would accept the Pay with Square mobile wallet for coffee purchases at its U.S. stores. 

In addition, Square also revealed a monthly $275 fee for merchants who process up to $250,000 a year in card transactions, giving them the option to avoid the standard 2.75% fee on each transaction. 

SumUp will likely watch that development closely, considering it also has established a 2.75% per-transaction fee for merchants, while touting no other fees in offering free readers and software applications.