The number of companies offering devices to transform a smart phone into a card acceptance device is increasing rapidly in the US and across Europe. Square, Intuit, iZettle, PayPal, mPowa, Elavon, SumUp, ChipCap, and a handful of other companies all apparently want a piece of the pie that acquirers have previously ignored.
As per June 2012, Square has enabled no less than two million individuals, small businesses, NGOs etc. to accept card payments. These segments that could previously not justify the cost of buying or renting a payment terminal with an acquiring agreement are willing to pay a merchant service fee of around 2.75% as long as the card acceptance device is free or low cost to obtain.
In its simplest form, the card acceptance device is a small card reader that plugs into one of the ports on the smart phone or tablet (e.g. microphone jack or USB), or it can connect via Bluetooth or NFC. The user interface is delivered through an app downloaded typically through App Store or Google Play (for iPhone and Android-based phones respectively). Often the app supports manual card detail entry in the absence of a card reader, i.e. a CNP transaction, which also entails a higher merchant service fee (typically 3.5% + a fixed fee). US-based companies tend to only support magstripe transactions, whereas European ones either support chip or both.
The majority of solutions involve the cardholder signing with his finger, i.e. signature. However, this appears to be a perceived issue with Visa Europe. Earlier this summer, iZettle which uses Chip + Signature was no longer allowed to handle Visa transactions outside Sweden. The reason provided was that the iZettle reader did not fulfill the Visa requirements for payment devices. SumUp, one of the latest entrants, claims to circumvent this issue by sending Visa cardholders a text message with a secure link, which they have to access to manually enter their full card numbers (which sounds highly cumbersome and probably is). (...)
This article is an extract from MACAW Card Bulletin #51. To access the full article and subscribe to the MACAW Card Bulletin, please contact sales@macawresearch.com.
