iZettle, the five-year-old Swedish company that makes card readers for smartphones, just closed a €60 million (£43.77 million, $US67.3 million) funding round from Intel Capital and Zouk Capital.
The series D round — the fourth injection of institutional funding — takes iZettle’s total raised to €147.4 million (£107.5 million, $US165.5 million).
The hardware business makes credit and debit card readers that link to smartphones and let small businesses and sole traders accept card payment — a bit like Square in the US.
CEO and co-founder Jacob de Geer told Business Insider earlier this year that “a couple of hundred thousand businesses” across Europe use iZettle and the UK is its fastest growing market.
Alongside the fresh funding round, iZettle is also moving into a completely new area — loans for small businesses.
It’s a type of shadow banking in that iZettle isn’t a traditional deposit-taking bank subject to things like deposit-guarantees, and capital and liquidity rules. The term can mean a lot of different things but essentially comes down to providing loans and investment services outside of the traditional lending banks.
It’s a huge and growing field. The latest report from the Financial Stability Board, a top level group of regulators and central bankers, had the global industry growing 7% to $US75 trillion (£48.7 trillion) in 2013.
Its iZettle Advance service will let customers who use the card reader borrow money against projected future revenues.
de Geer tells Business Insider: “It’s a pretty logical next step. We have deep integration with our customers’ data and we’ve got a good idea how much they’re processing every month or year. We’ve seen from the beta test we’ve been running for the last few months that we can reduce the risk quite a lot.”
He says customers will typically be able to borrow two to three times their average monthly revenues and there’s no maximum lending cap. Customers will be pre-approved for loans based on the data iZettle gathers from usage of its machines.
de Geer says: “They are pre-approved by several different factors. Everything from what business they’re in to how long they have been a customer. Then we have more traditional credit scoring. In the UK and Sweden where we’ve been for a while, I would expect the approval rate to be pretty high.”
Unlike traditional loans, iZettle’s won’t carry interest, nor have a set repayment date. The company will charge a fixed fee and the loan will be paid back by increasing the fee taken on future transactions using the terminal. That fee will vary depending on how business is — so customers will pay back more when they’re doing well.
de Geer says: “Let’s say you want to borrow €50,000 (£36,400, $US56,000), we’d charge, for example, €5,000 (£3,640, $US5,600). So you have to pay back €55,000 (£40,100, $US61,700). If they’re doing well, instead of paying a fee of 1.5% [on each card transaction], they might end up at 15%.”
“It’s simple, it’s transparent, and in my opinion it’s very honest. It’s not trying to lock you into a strange agreement.”
Square, the card reader startup set up by Twitter co-founder Jack Dorsey, also has a small business lending operation. Last time I spoke to de Geer he suggested Square’s move into this area could suggest it was struggling to make a profit on payments alone.
de Geer says this isn’t the case with iZettle, saying: “From our perspective it’s something that can compliment a business that already makes pretty good money.
“It’s something that’s been asked for by our customers when we asked them what they need. They can’t get access to finance from the banks, it’s partially the same reason they’re excluded from card payments.”
As well as funding iZettle’s new loan service, de Geer says the new funding round will support growth in its existing markets across Europe, as well as expansion into new countries. He hinted Italy could be on the agenda.
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