“Many SME-s, and especially micro-merchants are struggling with the foregone purchases problem,” Anders Bohlin, lead economist in the digital economy division of the European Investment Bank, tells me.
Foregone purchases, he explains, are purchases that did not happen because a small business did not accept card payments, and its customer walked away.
EUR 10 billion a year
In fact, a Barclaycard study assessed that last year foregone purchases in the UK alone amounted to almost EUR 10 billion. That’s a 25% increase since the last time they measured it. This is because:
- 70% of shoppers now prefer paying with a card over cash
- A third of shoppers would consider walking away from a retailer if they cannot pay by card, and a quarter have done so during the past 12 months
- The average adult carries less than EUR 30 in cash
- Half of SME’s still do not accept credit and debit cards
The Swedish financial technology company iZettle is trying to change this by making card payments more accessible, cheaper and easier to implement than the current industry’s offerings. In 2011, iZettle was the first company to develop a secure chip-card reader for a smartphone, along with an app to take such payments.
This summer they received a EUR 30 million loan from the EIB, included in the European Fund for Strategic Investments portfolio, partly guaranteed by the European Commission. “The loan will allow us to further accelerate our growth and continue to level the playing field for small businesses, giving them access to tools to take on the big corporations,” says Jacob de Geer, chief executive and co-founder of iZettle.
Debit card vegan truffles
EUR 10 billion could buy you a lot of peanut bars and vegan truffles. This is what Arzu Pinar and Emrullah Metin, who run a small café-shop in Rotterdam in the Netherlands, hope.
As is often the case for micro merchants / SMEs, it started out as a hobby. Arzu made chocolate and different kinds of sweets in her home kitchen while attending The Hague University. After shopping at a vintage market called Swan Market that sold food and anything you can image, Arzu and her husband Em got the urge to cross the aisle – to be selling at the market, instead of buying.
Initially they only accepted cash. Then they did online research to find a solution so that people wouldn’t forego the peanut bar purchases because they couldn’t pay by card. “We came across iZettle, and we're happy as it is so easy to use, has low costs and it is a solid system to work with. It works well for us,” Arzu says.
A potential unicorn
Arzu The Foodbar Supplier was not the only one to see the benefits. Around 1000 small businesses like Arzu’s sign up with iZettle every day, in 12 markets in Europe and Latin America, according to the company. Last year revenues increased to EUR 66.8 million. Losses, which are normal for the aggressive growth phase the company is in, were reduced by 23% year-on-year to EUR 23.7 million.
With the most recent financing round, the company was valued at $500 million and is considered one of Swedish fastest growing companies. In addition to facilitating payments, the company also provides sales tracking software, interaction with social media, meeting reporting requirements with tax authorities in some countries, and even providing funding to its clients, tailoring loan payments to the amount of sales the SME generates in any given month. iZettle software also provides entrepreneurs with stock management and business analysis.
“I liked the product from the first time I used it, in a small shop around the corner of our office in Stockholm. I decided to contact iZettle straight away. The disruptive business model and agile organization made them an interesting candidate for an EIB loan. We are proud to support their vision and help empowering millions of small shops and retail entrepreneurs to sell smarter,” says Jérémie Hoffsaes, working in the corporate lending division of the bank in Stockholm.
The EIB loan will be used for iZettle’s future research and development, including a next generation of electronic payments, machine-learning capabilities and artificial intelligence, digitalisation of commerce, and scaling of its compliance systems to be able to expand to a host of future markets, each with its separate regulation for such services.
This is good news for Arzu and Em, who are currently negotiating to opening their second restaurant, but have bigger plans as well. “After that, we really want to roll out a franchise formula for our concept. Hopefully, within five years we will be all over the world,” Arzu says.
Most likely, so will iZettle.