Samwer Brothers' Square Competitor Payleven Sees Early Momentum

Payleven, a mobile payment venture from the Samwer brothers' Rocket Internet incubator, started selling its mobile chip-and-PIN mobile card reader last week and received hundreds of orders for the new device.

If payleven's business model resembles that of Square, that may be the point. Other projects by Marc, Alexander and Oliver Samwer have taken heat over the past couple years because they resemble high-growth companies in the U.S. The German entrepreneurs' "Clone Factory," as some call it, has created successful companies that resemble eBay (Alando), Facebook (StudiVZ), Groupon (CityDeal) and now Square.

Payleven, founded in March 2012, sells a reader that links via Bluetooth to iOS smartphones or tablets and Android handsets and devices. Companies formed by the Samwer brothers and their incubator are sometimes sold to the company they most closely resemble. Square did not reply to inquiries about its perception of payleven.

Nils Seger, a payleven spokesman, says the payleven product isn't a duplicate of Square, which plugs into the headphone jack of a phone or tablet. Payleven's product is a separate handheld device used to insert a card and type in a PIN.

Payleven says it's the first to take this approach in Europe, but rivals such as mPowa also offer wireless chip-and-PIN card readers that work with phones and tablets.

Since the separate device "doesn't need to plug into a phone, it's not limited to different [mobile device] form factors," says Gil Luria, an analyst at Wedbush Securities.

The chip-and-PIN reader for mobile payments is certified by Visa Inc. and MasterCard Inc. and complies with the EMV standard.

"Payleven is a good angle," Luria says. "The Square dongle is a short-term solution. The industry needs something more like a terminal that still works with a phone or tablet."

The product, which was first debuted in October, joins an already over-crowded market, with Intuit Inc.'s GoPayment reader, Verifone's Payware and Sail, iZettle's hardware and many others.

Payleven, with offices in Berlin and London, manufactures magnetic-stripe card readers also, allowing users to sign their name with their finger on the mobile device screen.

"Chip-and-PIN is a superior technology, especially for the European market where end customers are very used to PIN authorization and hence, see it as the standard acceptance method," says Konstantin Wolff, co-founder and chief marketing officer at payleven, in an email.   

The demand for EMV products for small merchants is high internationally, but will slowly move towards the U.S. as merchants start adopting the EMV standard to not face the liability shift, says Luria. Then U.S. companies might start looking to acquire or source products from the German company.

While Square would be a natural bidder for payleven's technology, Luria says Square doesn't see itself in the hardware business as much anymore, focusing more on its mobile wallet product.

Square entered Canada, a country that already uses EMV cards, in October — without an EMV-capable card reader.

"The little dongle is the least of what [Square] does," Luria says.

Square turned a slow-moving, labor-intensive process into a simple, easy, democratized business, says Luria. Square could move to control the industry in the future, he adds.

More traditional point-of-sale terminal companies could eventually be interested in buying the startup as well. For example, VeriFone Systems Inc. and Ingenico S.A. have made similar acquisitions before, says Luria. And VeriFone has already stepped into the mobile card reader market with its Payware Mobile and Sail products. In November VeriFone added EMV chip-card acceptance to Sail.

Deborah Baxley, principal at Capgemini, says there are several downsides to payleven's device.

The hardware is bulky, ugly and expensive, she says. "Square is such a beautiful design and it's free," she says.

But according to payleven the separate device will create a better customer experience.

“When the device into which the customer inserts the card and enters the PIN is separate from the mobile device it will find higher acceptance,” Wolff says. “Additionally, it is easier for the merchant to connect multiple devices to one smartphone or tablet in case of e.g., a restaurant with multiple waiters.”

In the next two to three years small merchants that accept cards through mobile card-readers will have to figure out how to accept EMV cards, Baxley says, but card-reading attachments may soon become extinct as mobile payments gain acceptance. "Contactless payments using NFC to tap your phone, are a much better solution in the long run," she says.

Whether or not payleven is a copycat, it faces competition from a growing number of similar products. Last week, Nedbank in South Africa announced Nedbank PocketPOS, a device similar to payleven's that connects to a mobile device via Bluetooth. The device will be rolled out after use by a test group in the second quarter of 2013.

While the big four banks in the U.S. have started rolling out EMV chip-cards to consumers, the banks will allow consumers to choose between using chip-and-PIN or chip-and-signature. Chip-and-PIN-based transactions are more secure than signing to authorize a transaction, but banks such as Bank of America and JPMorgan Chase are sticking with signatures because it's what U.S. consumers know.

Payleven comes to market with the device that won't be deterred by Visa's halt of transactions in other countries because the countries did not have a chip-and-PIN option in place. Because of Visa's stance, many companies, such as iZettle, whose core business is mobile card readers, were hurt.

Visa has mandated the EMV standard in the U.S. also. Deadlines are fast approaching. Several mobile card readers have already explored opportunities in the U.S. For example, in June last year mPowa brought its mobile card reader attachment to U.S. merchants.

The U.K, Germany, Italy, the Netherlands and Poland will be the first markets to see the card reader, at $65 per device with a 2.75% flat charge on transactions. The company will begin shipping the product Feb. 18.