Banking is essential, but banks are not
Jacob de Geer (Sweden) is a serial entrepreneur and co-founder and CEO of iZettle, one of Europe’s fastest-growing companies. Based in Stockholm, the financial technology company revolutionized mobile payments in 2011 with the world’s first mini chip card reader and software for mobile devices. Today, iZettle is a one-stop shop for commerce for small businesses around the world, and hundreds of thousands are using iZettle’s tools to take payments, to register and track sales, and to get funding.
You’ve said that your goal is to democratize commerce around the world. What do you mean by that?
I know that democratizing is a very big word, but it works well to explain our mission. When we started iZettle, there wasn’t a viable option that helped Europe’s 20 million small businesses take card payments. There were expensive and complicated options for bigger companies but nothing for people selling stuff at a flea market or in a small café. It was clear what we needed to do: help them to accept payments just as easily as big corporations. Simply put, we wanted to democratize payments.
So, to make a long struggle short, we developed a mini chip card reader and a point-of-sale app that basically turns smartphones into cash registers. But what we really brought to market was the idea that small businesses should have the same opportunities as big businesses. We quickly learned that small business owners are underserved by the traditional finance industry in many other ways. So we branched out from our core mobile payments offering—adding services such as invoicing, business management, customer engagement, and more. That’s why today we talk about democratizing commerce.
That sounds like a typical case for disruptive innovation—start with the customers that no one is currently serving?
Yes, and there are still many millions of small businesses being underserved by old-school financial players. Thanks to digitalization and high smartphone penetration, we can now give them access to the same tools the big players have. We compete in a highly regulated industry, and all of these rules and regulations were created much before smartphones and digital solutions. So, the biggest disruption for us was really the online onboarding and making it easy to become a customer for both business owners and their consumers.
Where Uber is fighting the landscape of regulations, you guys have decided not to. How come?
We chose to try and work together with the regulators and have had countless conversations with different authorities. Finally, they approved our product and solution, as we managed to explain the injustice with the current system, which really wasn’t built for small businesses.
With that said, I think innovative technology is always challenging and changing the regulatory landscape. As the Swedish mega entrepreneur Jan Stenbeck famously said, “Politics may beat money, but technology always beats politics.”
How did you become aware of this hole in the market?
The whole thing started with my ex-wife coming home one night very frustrated. She ran a sole-trading business, and she had been at one of these big trade fairs. However, she couldn’t offer any form of credit card payment solution, and since 50% of the people wanting to buy something from her didn’t carry any cash, she missed out on 50% of her business potential. I asked her why she didn’t get a card terminal, and she said that she would love to, but the card provider asked her for a very large amount of money and a 24-month subscription clause. That just didn’t seem right to me.
Since iZettle was founded, other companies have joined the mobile point-of-sale (mPOS) race in Europe. What’s your vision of the current market and of your competition both in Europe and South America?
Many people make the mistake of thinking of us as solely a mobile payments solution provider, but today we compete in many different market segments. Our role is essentially to level the playing field for merchants and help them sell more. At the same time, we want to simplify things for them and help them work smarter, so that their daily accounting is done with the press of a button. This saves them expensive accountants and complex business commerce solutions.
If you don’t compete with mobile payment solutions, where is the benchmark for iZettle?
Well, we’re creating a new category so there’s not one benchmark but several. Focus for us moving forward will be leveraging the data we have, and scale with the help of artificial intelligence and machine learning. The last five years we’ve been at the center of an ecosystem which every day provides us with 200 million data points. By making use of the data gathered, we’re able to design products custom made for the needs of small businesses. As an example, we’re now able to offer merchants a cash advance. Instead of relying on credit ratings, we track your daily sales data and can pretty accurately estimate what your sales will look like in the future. This enables us to offer merchants quick and easy access to capital, which helps them expand their business.
So you basically tell the merchants to stop going to the local bank for a business loan and instead getting the credit from you guys?
The bank will think of these small companies as a high-risk segment. Therefore, they will either say no or give them a very poor deal. While banks read yesterday’s news, we look at real-time data and can offer eligible merchants a tailor-made financing service. Repayments are automatic and tied to card sales, so when business is booming, you pay more, and when things are slow, you pay less.
You have a Swedish background just like the founders of Spotify and Skype. What is up with you Swedish people and tech startups?
When it comes to hosting unicorns, Stockholm is second only to Silicon Valley. Just like Björn Borg inspired generations of Swedish tennis players, startups like Spotify and Skype have inspired a new generation of startups. We now have a thriving ecosystem, with second and third generation entrepreneurs supporting new wave of entrepreneurs.
How is the financial industry going to be disrupted in the future? What do you think will happen?
I think we’ll continue to see fintechs accelerate their growth and grab market share from banks. Banks won’t disappear any time soon as they continue to sit on critical infrastructure and have lots of cash, but they will have to start thinking seriously about their next step and what they can do to remain relevant. They basically have to make a choice: either fight for the customer relationship, leverage their data, and deliver a superior experience and price or take a step back, become a platform for fintechs to build on, and let fintechs do what they do best: face the consumer.
Right now, disruption is happening in so many places. There is no big bang. It’s an ongoing process built on trial and error, and all the areas within the financial industry will be under fire. I think that what we’ll see is a redistribution of revenues and profits rather than a closure of the major banks. To quote Bill Gates, “Banking is essential. Banks are not.”
We’re talking about payments, customers care aboutshopping.
Ranjit Sarai